8 Monthly Financial Reports That Every Business Owner Should Review

track financial reports

Track Trends and Look for Unusual Movements in Your Numbers

No matter the size of your company, business owners are busy people. Even so, it’s important for business owners to keep their finger on the pulse of their company. So, don’t ignore that pile of reports that your accountant hands you at the end of every month. Those financial reports contain important information about your business. A cursory glance at the monthly profit may give you a feeling of comfort. But that alone is not going to help you run your business.

Business owners need to look at the detailed numbers to understand what is happening in their business. You don’t need to spend days analyzing your monthly financial reports. But you do need to track the trends and look for any unusual movements in the numbers. Here are eight financial reports that every business owner should review each month.

1. Profit and Loss Statement

The profit and loss statement (P&L) provides a summary of the revenues and expenditures of the business. The report should show both the year-to-date figures and the monthly figures. The report should also have columns that show the budget and the variance against budget. The P&L should have subtotals to show the gross margin and net profit. It will also have subtotals for key categories of income and expenditure.

The profit and loss account is your high-level performance summary. As well as looking at the bottom line, you should be looking for any unusual variances. An analysis of the P&L will identify and areas of the accounts that you may need to investigate further.

2. Detailed Gross Margin Report

Depending on the type of business, you may also need to review a detailed gross margin report. This is a report that will show you your gross profit by product or by service. If you sell a product, the report will detail the gross margin by product or product category. If you run a consultancy business, the gross margin report may be by type of service or by each fee-earning employee. As with the P&L, the gross margin report should have actual, budget, and variance columns.

The detailed gross margin report shows you where you are making your gross margin. Variances in on this report mean that you are making more, or less, gross margin than you expected. It will also be useful if you track gross margins over time. A line graph of margins will highlight trends in the profit that you are making from each item that you sell.

3. Detailed Budget Variance Report

A detailed budget variance report compares all the items of income and expenditure with your budget. The columns of the report will be the same as the profit and loss account. The budget variance report is useful as an exception report. You can use the variance report to identify large variances. It is also the backup to the summarized P&L.

Modern accounting systems have drill-down facilities with their reports. So, you won’t need hard copies of any of these reports. You should be able to drill down a summarized P&L, for example, and explore the underlying figures.

4. Cash Flow Report

The cash flow report shows you where you have spent your cash in the month. This is different from the P&L because a cash flow report will contain movements in cash only. A P&L is an accrual driven report. The P&L is a report of the sales and accounts payable invoices posted in the period.

Managing the cash of a business is an obvious necessity. Even so, checking the bank balance daily is not enough. By looking at the cash flow statement each month, you will be able to see where your cash is going. It can also highlight anomalies that the P&L won’t.

5. Cash Flow Forecast

The cash flow forecast shows you your expected cash movements in the future. It can be useful to have your cash flow in columns containing the next twelve month’s forecast. The accuracy of a cash flow report will diminish the further forward in time you look. Even so, a long-term cash flow report will show where cash flow may become a problem in the future.

Reviewing the cash flow every month will help you manage the peaks and troughs in cash. Some events in your business don’t impact on cash until after the event occurred. A low month of sales, for example, may not impact on your cash flow straight away. The low sales won’t affect cash until the sales invoices become due.

The cash flow forecast will also identify large payments that may not show in your budget. The addition of a fixed asset, for example, will appear in your budget as an increase in the monthly depreciation. The actual purchase of that asset, though, may represent a large, one-off cash payment.

6. Aged Accounts Receivable

The aged accounts receivable report shows your outstanding sales invoices summarized by customer and age. The report is usually presented in columnar format. The debtors’ names are the rows. The columns summarize the outstanding balances by age. The aging brackets used are usually current, 30 days+, 90 Days+, and over 90 Days. The aging brackets may vary depending on the terms that you offer to your customers.

A review of your aged accounts receivable will highlight overdue customer accounts. The overdue accounts will need to be chased for payment. The aged accounts receivable report will also highlight any large customer balances. Large unpaid balances could cause a cash flow problem if they are not paid on time, so these accounts will need monitoring.

7. Aged Accounts Payable

The format for the aged payables report is the same as the format of the aged accounts receivables report. The aged payables report shows what supplier’s invoices are due for payment and when they are due.

The aged payables report is a report that some small business owners overlook. The report is, though, useful for tracking how well you are managing your cash. It will also identify any large invoices that are going to become due for payment soon.

8. Balance Sheet

The balance sheet is a snapshot of the financial affairs of the business. The balance sheet will show you what your assets and liabilities are. It will also show what the liquidity of your business is and what your equity in the business is.

The balance sheet is not a forecast. It does, though, show if the business has the assets to pay its liabilities. The short-term liquidity of the business is the net current assets figure. The long-term liquidity of the business is the net assets figure.

The balance sheet is another report that is useful to analyze over time. The movement in liquidity, for example, may highlight a trend that is not obvious in other reports. If your business sells products, then monitoring the stock levels will also be useful.

The Bottom Line

The important thing to remember is that reviewing your business financial information is essential. Yes, poring over these reports can seem tedious. Even so, analyzing the financials is the only way that you can track how well your business is performing.

About Universal Funding

Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.

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