Financial Reports | Measure it, Manage it.
IMPORTANT REASONS TO LOOK AT YOUR FINANCIAL REPORTS
There is an old saying in the accounting and finance industry: “If you can’t measure it, you can’t manage it” and it always rings true. Taking the time to look over your financial reports each month is an incredibly important task for any business owner. If you don’t have any financial reports to look over, then it’s imperative that you talk to someone about what this means and looks like. It’s not hard these days to grab an “off the shelf” accounting package like Xero and put in place [very quickly] an accounting and reporting system for your business.
This article explores why it is very important to take the time to look over your financial reports. But before we begin, let’s explain the main reports, that as a minimum, you should be looking at each month.
PROFIT & LOSS REPORT
As the name suggests, the ‘P&L’ report shows how your business is performing over a period of time, such as a month or a financial year. It shows the revenue that your business has generated, less the expenses for that same period. It simply shows how profitable your business is.
This report simply totals the businesses assets, liabilities and equity. What we’re most interested in is the net asset position. When net assets are hopefully positive, this means your assets are larger than liabilities, leaving you with positive owner’s equity.
This financial report shows how much money is still owed to the business as at a certain date in time. This report is also segmented as to how overdue they are by how far past they are from invoice date – current, 30, 60 and 90 days columns.
The opposite of receivables, this is your outstanding bills yet to be paid. Payables outstanding for greater than 30 to 60 days will quickly indicate to you potential cash flow problems. It’s a very quick baromter for accountants and financiers to look at to see how you are managing your cash. Therefore it’s a great one to understand and look at regularly.
SO WHY LOOK AT THESE REPORTS?
UNDERSTAND YOUR BUSINESS
By looking at your Profit and Loss report monthly you will get a good picture of how your business is performing and it will give you a better understanding of what makes up your profit. By comparing periods you can clearly see on one page the revenue and expenses and trends in your data. If for example you undertake a new marketing campaign, you want to ensure you get value for money, and hopefully you’ll be able to see the results in the month on month revenue numbers.
YOUR BANK WILL LOVE YOU
Both your bank and your accountant will love you. It surprises us just how many business we hear about and see that don’t have up to date financial reports or information. If you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet as a lot can be learned about a business by looking at these reports in conjunction with bank statements and accounts payable. The better and more robust these financial reports are, the more reliance a lending institution can place on them, ultimately meaning it’s easier to obtain finance.
IMPROVE CASH FLOW
Your Accounts Receivable Aged Summary report means you can follow up with overdue accounts promptly, which often results in getting paid quicker. The longer an overdue amount is left unpaid the higher the risk of it not being paid at all.
Also having an accurate understanding of how much money the business is owed, and how much money the business owes, can help with cashflow planning to ensure that there is enough money when needed. Additionally, understanding the trends of your business, its profitability drivers and its expenses can help to plan sales and marketing campaigns so that the revenue keeps coming in.
BETTER DECISION MAKING
Like we said above, if you can’t measure it, you can’t manage it. Robust financial reports tell the story of your business, and it’s important you understand that story. The more you understand, the better you can make decisions around the key business drivers. Better decisions lead to more profitability and sustainability of your business.
Praescius’ Tax & Accounting are a professional team of qualified accountants who understand the importance of sound and robust financial reporting. They can assist your business with accounting systems, recording of information and financial reporting. So if you’re not quite sure what your businesses financial position is, or need an accounting system like Xero, why not give us a call. Alternatively, you can fill in your details here and we’ll get back to you as quick as we can.
– 7 October 2020 –
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