No matter what size or type of business you run, financial metrics are essential for decision-making. And while you probably already have a basic understanding of this, you may not know what you need to prioritize to keep your business’ financial health in check.

Many entrepreneurs neglect to review their finances until tax time. But scheduling time for a monthly review and analysis of some key financial reports can help to:

 

  • Clarify long- and short-term business goals

  • Understand the liquidity of your business

  • Get clear on your break-even number

  • Adjust business activities to stay on budget

  • Ensure you have money for emergencies

  • Create budgeting plans and forecast for growth

 

At first glance, financial reports may seem intimidating. But these days it’s easier than ever to generate automated reports from online accounting programs like Quickbooks.

Here are the top 5 reports that entrepreneurs should review regularly for a consistent and clear understanding of company performance.

 

1. Income Statement

The income statement is also known as a profit and loss (P & L) statement. This report offers an overview of income generation, but it can also help you:  

  • Analyze your net income or loss over a specified period of time

  • Analyze and assess your overall risk for stakeholders and creditors   

  • Clarify details about expenses, operating costs and revenue

  • Calculate gross and net profits

The key here is to practice looking beyond the basic numbers on the statement. This report allows you to take a more in-depth look at your overall spending and revenue patterns and get a sense of how longer-term trends could impact your business.

 

2. Budget Versus Actual

This report compares your actual current income levels to your projected budget, offering a big-picture glimpse of how well you are meeting your target goals within a certain time frame.

Your budget versus actual lets you look at spending versus revenue patterns, where you are meeting your target budgeting goals, what moves might be the most profitable in the coming period, and where you may need to reduce spending to stay on track.  

3. Balance Sheet

Your budget versus actual lets you look at spending versus revenue patterns, where you are meeting your target budgeting goals, what moves might be the most profitable in the coming period, and where you may need to reduce spending to stay on track.  

Your balance sheet is an essential overview of accounts, assets and liabilities, representing your basic accounting equation: assets + liabilities = equity. When you review your balance sheet, you’ll be looking at items such as short-term assets and liabilities, and making sure you have enough to cover accounts payable.

 

The balance sheet gives you an overview of the overall financial position of your company, as well as the types of resources available for financing purposes. Reviewing the balance sheet will help you get clear where you stand with debts and assets, so that you can stay in good standing with creditors.

 

4. Cash Flow Statement

You can think of your business cash flow patterns in a similar way as keeping cash on hand in your wallet in case of emergencies. Cash has a defined value and can be used immediately; it’s purpose is more linked to immediate earning and spending actions than longer term debts, assets or equity.  

The cash flow statement offers an important glimpse of your liquidity. You need to make sure you have enough liquid cash on hand to cover short-term and immediate payments rather than relying on credit or accounts. Your cash flow statement also sends important messages to potential creditors or shareholders about the overall performance of your  business.

 

What do all the numbers mean?  

While you won’t necessarily know how to manipulate numbers without a little practice, the main thing is that you get used to reviewing numbers monthly instead of waiting for tax season. Staying on top of things throughout the year allows you to make  adjustments based on month-to-month fluctuations, and budget wisely for unexpected changes or emergencies.

If you’re not accustomed to managing your own accounting, you may feel overwhelmed looking at these numbers. A good accountant should go the extra mile and help you understand how to use financial statements to guide business decisions.

Find Peace of Mind

“The truth is that no entrepreneur or business owner succeeds by doing less overall. Success means doing less of the things that don’t meet your true value and doing more of the things that do.” ~ Michael Ly, CEO

 

As an entrepreneur, you are probably already spreading yourself too thin, and shouldn’t spend your time trying to do everything. That’s why we recommend getting assistance understanding, analyzing and managing your accounting for your business.

If you want help creating a realistic budget and managing your taxes, getting a better read on your e-commerce finances, or analyzing your financial statements, we offer affordable, flexible solutions.

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