Why you should make time for your financial reports

Six reasons business owners make time to look at their financial reports each month:

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1. Checking your gut feel. Your Profit and Loss report (P&L/Statement of Financial Performance/Income Statement) shows how your business is performing in numbers. It can confirm how you think your business if doing or identify areas missing your focus. A good place to start is to check that your Net Profit (income after all expenses) is in the black and your Gross Profit (income after direct costs) is covering your overheads.

2. Checking you’re on track. Your Budget Variance report (Budget Analysis) shows how your business is tracking against your goals. It can confirm that everything is going to plan, if interventions are needed around income or expenses, or if the plan needs to change because of changes in the business environment.

3. Checking you have enough cash. Your Cash Summary report (Statement of Cash Flow) shows your cash inflows and outflows including payments relating to assets and liabilities. This shows how much cash your business requires and if you’re receiving enough income to meet your payments. If you’re going to be short of cash, you can: make sure you’re being paid on time (Aged Receivables),ask for extended credit terms with your suppliers (Aged Payables) or apply for finance.

4. Making sure you’re getting paid and paid on time. Your Accounts Receivable Summary tells you how much you’re owed and if any payments are overdue. Staying on top of your Accounts Receivable helps ensure you’re paid on time, and it reduces the risk of a bad debt.

5. Checking your business health. Financial reports can also be used to work out your key financial ratios including: Gross Profit Margin (the percentage of income you have after direct costs), Net Profit Margin (the percentage of income that is profit), Cash Ratio (if you have the cash to cover your current liabilities), Cash Flow to Debt Ratio (how much of the business debt could be paid with your operating cash flow), and Accounts Receivable Turnover (how quickly you’re collecting payment).

6. Better decision making. With your numbers in hand, you can start to investigate the “why” behind them. If your Net Profit is down, why is it down? Are sales down? Have costs increased? Was there an unexpected cost? Or is it just the timing of a particular expense? The why can help you understand what’s going on and what areas of your business need attention.

Drop us a line or give us a call if you want to get the most out of your financial reports.

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