The Top 5 Financial Reports Small Business Owners Need to Check Regularly

As a small business owner, it is easy to get bogged down in the day-to-day operations of your company. You run from task to task taking care of customers, fulfilling orders, hiring, and putting out fires and often major issues can go undetected until it is too late. 

Here are five key financial reports that can give you valuable perspective on the growth and development of your business. You should run and review these reports periodically – perhaps with your accountant, who can offer advice on improving financials.

  1. Profit & Loss: The profit and loss statement (P&L), also known as the income statement, shows revenues generated during a specific period, the costs incurred to generate those revenues and the resulting profits or losses. These numbers will influence your marketing efforts, pricing, and your expense management.

    The income statement is used by internal stakeholders (such as the management team and board of directors) as well as external stakeholders (such as investors and creditors) to evaluate profitability and help assess the level of risk for an investor or creditor. To have a viable and valuable company, revenues must exceed expenses.

  1. Balance Sheet: The balance sheet shows a financial picture of your business as of a specific date. It runs down what the company owns (assets), what it owes (liabilities) and the difference between those two, or the company’s equity.

    Some key line items on the balance sheet include: cash, accounts receivable, inventory, accounts payable and (if you have debt) the portion of long-term debt that is due this year and the balance of any short-term loans (usually secured by accounts receivable and inventory).

    The balance sheet can be used to identify trends and make more informed financial accounting decisions. It is also important to lenders to determine a company’s creditworthiness.

  1. Cash Flow Statement: This financial statement blends information from both the income statement and the balance sheet to give you a picture of how cash is going into and out of your business. The “cash flow from operations” line is one of the most important across all financial statements. It shows over the period listed the net difference of cash that came in and cash that went out on an operating level.

    Looking regularly at cash flow from operations gives better perspective on the health of your business, allowing you to concentrate on how to improve results. The cash flow statement is formulated with three sections: operating, financing and investing activities. It indicates which areas of the business are generating and using the most cash. One of the best uses for the statement is to estimate future cash flow which will assist with budgeting and decision making.

  1. Accounts Receivable Aging Report: The Accounts Receivable (A/R) Aging Report categorizes outstanding accounts receivable into groups based on the due date of the invoice, typically current, as well as 1-30, 31-60, 61-90 and 90 plus days overdue.

    Poorly managed accounts receivable is a common source of cash flow problems for small and mid-size businesses especially. The more cash you have tied up in receivables due to slow-paying customers and delinquent accounts, the less cash you have available for running your business. Reviewing the A/R aging report can help you proactively manage the receivable collections process and create more accountability for your collections staff.

  2. Revenue by Customer: In the same token as paying close attention to money owed to your business, it is important to look into who is giving you the most of it. Your revenue by customer report tells you how much you made from each customer over a specified period. Many industries rely on repeat business, so building solid relationships with those you serve has the potential to turn into a steady, reliable stream of repeat revenue. 

    At the same time, if too much of your revenue comes from one source, it is considered a revenue concentration risk. If one client leaving would ruin your entire livelihood, you need to diversify who and how you serve. 

Running and reviewing these 5 financial reports regularly will give you the most comprehensive overview of how your business is doing financially, who your best clients are, the state of your cash flow, and even whether or not you qualify for business financing or a loan. You may feel like you’re going cross-eyed at the beginning, however once you learn to read and understand which reports are most important, you’ll be able to make better financial decisions to help your business flourish.

The guidance provided in this post is generalized and not intended to provide any legal/financial advice. Do you need help understanding your financial reports and creating solid business goals? Let your BATS Xpress team know, we can sit with you and process each report and what it means for the health of your business. Call us today to discuss financial services that addresses your business and specific industry.