Six Key Financial Reports for Your Business
Many businesses rely on financial reporting to better understand the financial health of the organization and to spot potential issues. Financial reporting provides key insights into performance and can help make data-driven business decisions. But, there are numerous types of reports and metrics that businesses could use. This can make it overwhelming and difficult to paint a clear picture of your business’s financial health. In this blog, we will go over six key accounting reports you can use to make better business decisions.
Profit and Loss (P&L) Statement / Income Statement
One of the most important reports you should start off with is the profit and loss statement. This report will tell you how much money your business is making and the financial state it is in. A solid P&L statement will show where your money is coming from and where it is being spent. For example, how much you spend on business services versus how much you make from each type of service/product your business offers.
It is recommended to review this report at least monthly to spot trends. For example, make a comparison between the past month’s results to the same period in the previous year. You will be able to identify issues before they turn into bigger problems. You will also be able to see what works and what doesn’t, so you can prioritize areas that generate the best results.
Cash Flow Statement
Similar to a P&L statement, cash flow statements show a company’s profitability by showing how much money is coming into and going out of the business at a specific point in time. Ideally, this should be prepared once a month as expenses are typically paid on a monthly basis. A simple formula to start off with is: “(beginning cash balance) + (cash inflows) – (cash outflows)” to determine your ending cash balance.
A balance sheet (also known as a statement of financial position) is a statement that gives you visibility into a company’s assets and liabilities at a specific time. This information can be used to calculate rates of return and evaluate the company’s capital structure.
Your balance sheet should include assets such as property, equipment, computers, and other physical items. Liabilities should include anything a business owes, such as business loans, credit cards, and so on. By using a balance sheet, you will have a clear snapshot of the company’s financial position and business’ net worth.
Accounts Receivable Aging
Every business wants to get paid for the products or services they offer, and in a perfect world, on time. But in reality, that is not always the case. You may occasionally receive late payments. You want to be able to see which customers pay on time, pay past the deadline, or just started paying late. An accounts receivable aging report will provide this information so you can stay on top and reach out to customers with late balances. This is vital as you want to make sure the business has sufficient and consistent cash flow to put back into the company.
Refusing ongoing service or shipments to delinquent customers will help protect your business from being taken advantage of. A helpful method is categorizing due dates by length of time overdue such as 1-30 days, 31-60 days, 61-90 days, and 90+ days. This will help you to take a proactive approach to managing your accounts receivable, as well as have clear visibility into more urgent situations.
Accounts Payable Aging
In contrast to the accounts receivable aging report, this report will show you information about your own payments – who you owe and when. It’s important to stay on top of all this as you don’t want to incur late fees and hurt your relationship with vendors. They can be reluctant to offer you special discounts and/or complimentary services and features if you have a poor relationship. You also want to pay your bills on time so your records and expenses are consistent and not disorganized every month.
Revenue by Customer
Being able to see how much revenue you are generating from your clients is important. You will see how much you earn from each client, including those who are providing you the most revenue. With this list of high-profit clients, you know who to focus on in developing a good relationship and providing quality service to turn them into satisfied, long-term clients.
Remember not to forget about your smaller clients! Neglecting them can contribute to a significant decrease in revenue and make them unhappy. Solely concentrating on one client can be risky – there are no guarantees they will remain a client forever, even if you provide the best product and service.
Financial reporting can be intimidating – especially for small businesses. With all the different types of reports available, it can be a challenge to determine what reports and metrics you need to thoroughly understand your business’s financial state. The six reports we highlighted in this blog are essential in helping you know your company better. Use them to identify issues earlier and have the insights required to make better strategic decisions for your business.
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