When you’re running a small business and performing your own bookkeeping, the number of financial reports can seem overwhelming. Which reports should you pay attention to? Are there reports that are more vital than others?
Of course, all financial reports have essential functions, but some are more likely to give you a comprehensive view of how well your company is doing. There are even reports that serve as good predictors of how your business will do in the future.
Keep an eye on your business’s health and well-being by regularly running and reviewing these five financial reports.
Also known as a statement of income, a profit & loss (P&L) gives you an overall view of your company’s revenue, costs, and expenses during a specific period. The P&L is a popular report because it reveals the profits or losses your business is generating.
The P&L consists of your company’s income (sales and revenue) minus expenses during a specific period. Expenses include those required to operate, cost of goods sold, interest, and taxes.
It’s advisable to check your small business’s P&L regularly. Comparing P&L statements over various accounting periods is also highly advised. This will show you shifts in revenue, operating costs, net earnings, and spending over time. Regular monitoring will enable you to spot a decline or increase in income.
Awareness of your company’s profits and losses over time enables you to make short and long-term plans to ensure that your business remains successful.
Potential investors and creditors will also want to see your P&L statement. These stakeholders know that a viable and valuable company sustains a revenue that exceeds expenses. The P&L will illustrate your company’s ability to generate profit.
A cash flow statement provides a view of all cash and cash equivalents coming into your company from ongoing operations and external investments. Subtract this total from cash outflow used to pay for business activity and investments. Cash made by your business through operation, investment, and financing is your net cash flow.
Your cash flow statement shows investors or creditors a portrait of transactions coming in and going out of your business. This offers a bird’s-eye view of how your business is doing financially.
When operating cash inflow is more significant than cash outflow, it signifies that your business is thriving. If the opposite is true, your company is losing money. You need sufficient cash flow to operate and run a successful company. You can use your cash flow statement to estimate future cash flow and enable you to budget effectively.
Also referred to as a statement of financial situation, your company’s balance sheet offers a snapshot of your business’s finances at a specific time. Balance sheets provide information on your company’s total assets, liabilities, and any shareholder equity. Preparing balance sheets usually takes place at the end of an accounting period, sometimes quarterly or yearly.
The financial snapshot provided by the balance sheet shows your company’s current financial position. This includes what your business owns, owes, and financing resources overall. Liabilities plus owner’s equity equals assets on the balance sheet. Liabilities can be short-term, such as taxes and accounts payable, and long-term, such as loans.
You can use your company’s balance sheet to identify financial trends and make decisions for your business. Lenders will also request a copy of your balance sheet because this document shows them your current creditworthiness.
The balance sheet reveals your company’s equity. This is determined by subtracting liabilities (what your company owes) from assets (what your company owns). Knowing your company’s equity is essential, as it shows how valuable your business is. This information can inform future decisions.
An AR aging report categorizes your client open accounts according to the length of time since you invoiced. This report shows you which customers have unpaid invoices, how much they owe, and how long it’s been since you invoiced them. Typically, the AR aging report tabulates in 30-day increments: Current, 30 days, 60 days, 90 days, and 120+ days overdue.
Keeping an eye on your accounts receivable (AR) aging report is vital to your company’s cash flow. This report helps you gauge the financial health and stability of your customers. If you have clients who are perpetually delinquent in paying you, they are a weak link in your cash flow chain. Similarly, your AR aging report will reveal if there are customers who were once on time and have now slowed in payment. That could be a warning sign that your customer may be having cash flow problems.
Knowing how much is owed to your business gives you the information you require to make collection efforts and credit decisions. You may decide to discontinue providing particular customers credit or lower the threshold when payment is needed before further services or products are delivered.
Checking your AR aging report weekly allows you to take a proactive approach to collections. Armed with information about what your clients owe, you can stay on top of collecting funds. The more cash you have tied up in receivables because of delinquent and slow-paying accounts, the less money you have available for expenses and growth. Failure to manage your AR aging report and collect what is owed to your company will lead to cash flow problems.
If your company stocks inventory to conduct business, a running record of your total inventory is necessary. An inventory report summarizes what you have on hand and in what quantities at any given time.
Most inventory reports are categorized into products you can sell now, inventory required for internal use, and inventory that has been ordered but isn’t yet in stock. Checking your inventory regularly allows you to ensure that you have what you need to conduct business.
Additionally, checking your inventory regularly can alert you to problems. If the stock remains the same or increases, that indicates a slowdown in your sales pipeline. You can spot minor issues before they become major ones by monitoring inventory often.
Running these five reports regularly is sure to give you valuable information about the health of your company. Think of the reports as regular checkups designed to provide peace of mind. Swyft Books enables you to run these five reports and more! Take advantage of a free trial today and start monitoring your necessary business finances.