Improve Your Financial Reporting: Know Which Reports to Pull and When

Stay on top of the financial health of your business with regular check-ins on a few key reports.


How well do you know your current business financials? Are you the “I’ll review at year-end” kind of business owner? Or is your lock screen a live version of your Profit and Loss (P&L) Report?

Financial experts advise small business owners to find a happy medium between annual check-ins and compulsive check-ups. Regularly reviewing key accounting reports—typically available on your accounting software—can provide the kind of insights you need to know to steer your business in the right direction.


Contents

How FreshBooks Customers Use Financial Reports
7 Accounting Reports to Keep an Eye On
     Profit and Loss (P&L) Report
     Cash Flow Report
     General Ledger
     Trial Balance
     Item Sales Report
     Expense Report
Financial Reporting: Compliance vs. Management
When to Review Your Accounting Reports
     Reports to Review Daily(ish)
     Reports to Review Weekly
     Reports to Review Monthly
     Reports to Review Quarterly
Other Times You May Need Financial Reports
     Reports You Need at Tax Time
     Reports You Need When Securing Investors or a Loan
     Reports You Need When You’re Growing
     Reports You Need When You’re Selling Your Business
Overwhelmed? Outsource It


“Financial reports are a summary of the historical transactions of your business and where it is, as of today,” said Melanie Schroeder, CPA, CGA, RPC, and founder and CEO of Out of the Box CPA in British Columbia, Canada.

“Running a business sometimes requires doing financial forecasting, and you can’t do that unless you know what’s coming in and what’s going out.”

In order to know whether to bring on a new hire or invest in a new piece of equipment, or where to focus your next marketing blitz, you need to know things like:

  • Are you bringing in more or less revenue than you were this time last month/quarter/year?
  • Which products, services, and clients are responsible for most of your sales?
  • How much have you spent on equipment, online services, utilities, and other business expenses in the last month/quarter/year?

This is where financial reports are your friend.

How FreshBooks Customers Are Using Financial Reports

Our data shows us that, of the 5 reports for which we have full-year data (P&L Report, Balance Sheet, Trial Balance, Payments Collected, and General Ledger) in 2020 and 2021, customers accessed all reports at a slightly higher rate in January through April, pulled up the P&L Report more in December, and generally lost interest during the summer months.

“This is consistent with how people behave,” said Schroeder. “We should be [reviewing financial reports] all year long, but many people are most interested in how much money they made at the end of the year and are pulling reports for their accountants at tax time. It also makes sense that people want to take a break in the summer.”

7 Accounting Reports to Keep an Eye On

Although your accounting software probably includes a number of useful financial reports, the ones you’re going to review fairly regularly are as follows.

mastering cash flow

1. Profit and Loss (P&L) Report

A list of earnings, expenses, and net profits for a specific period of time. CPAs also refer to this report as an Income Statement. Read more about the Profit and Loss Report.

2. Balance Sheet

An overview of your business’ financial status, such as assets, liabilities, and equity. Read more about the Balance Sheet Report.

3. Cash Flow Report

An overview of the cash coming in and going out of your business. Also known as a cash flow statement. Read more about the Cash Flow Report.

4. General Ledger

A master accounting document that provides a complete record of all the accounts a company uses divided into three types: Assets, liabilities, and equity. Read more about the General Ledger.

5. Trial Balance

The balances found in each of the accounts in your General Ledger. Debit balances are listed in one column; credit balances in another. The total of each should be identical. Read more about the Trial Balance Report.

6. Item Sales Report

How much money you’re making from each item you sell, as well as how many times you’ve sold each item. Read more about the Item Sales Report.

7. Expense Report

A breakdown of all of your expenses in detail, including any applicable taxes. Read more about the Expense Report.

Financial Reporting: Compliance vs. Management

Many business owners look at accounting reports solely as a means of preparing for tax time. That’s understandable. Compliance is an important aspect of running a business.

But financial reports are also useful to maintain your business’ financial health and cash flows. And they give you the ability to forecast and the foundation for sound business decisions. So, it’s critical to think beyond compliance reporting.

“Compliance is the typical historical view. You’re looking at [financial information] after the fact when you’re filing taxes. But you can use those historical views to identify trends that are happening. And you can use that trend analysis to plan for what’s going to happen,” said Schroeder.

She points to her own industry as an example of how financial reports help manage her business. “Accounting firms get busier in February, March, and April. If I’m looking at historical financials and seeing that the volume of my business doubles in those months, I know I might have to hire an extra person. I can see how much more my revenue grows in those months and I can plan for the staffing levels I need,” she said.

“If I don’t look, I don’t know what resource planning to do.”

Even businesses that don’t have predictable ebbs and flows can use the information found in accounting reports to identify the trends that will help them develop budgets, create goals, and make plans for the future.

“You can answer questions like, ‘How can I increase my business in the quiet times?’ or ‘When is a good time to take a vacation?’ It’s all about having the information at hand so you can make good decisions,” said Schroeder.



When to Review Your Accounting Reports

As important as it is to have a finger on the pulse of your business’ finances, it’s not necessary to review every financial report every day to accomplish your goals. Schroeder recommends checking in on certain reports at regular intervals to help you steer your ship.

Reports to Review Daily (ish)

  • Item Sales Report
  • Expense Report

Don’t worry. It’s not usually necessary to review your financials on a daily basis. But, Schroeder says, if your business is generating revenue every day, taking a peek at your sales could be an interesting exercise.

“If you created an annual sales target, you may want to check on that every day to see where you’re at, so you can correct as you go. The more often you check it, the easier it is to determine if you’re getting off track.”

“Same goes for expenses—and anything you’re trying to monitor and maintain.”

Reports to Review Weekly

  • Cash Flow Report
  • P&L Report

When it comes to a weekly look, it’s helpful to have a good grasp of your business’ cash flow. “Cash is queen. It’s something you need to keep a handle on, especially when the economy is unpredictable. You want to know what’s coming in and what’s going out,” said Schroeder.

While looking at historical cash flow numbers, you need to think about what your cash flow will be for the next two to three weeks or months. Use this information to determine whether you’ll have the funds to meet your accounts payables. If not, you can start strategizing.

“If cash flow is short, you can try to collect accounts receivables sooner, extend accounts payable terms, dip into your financial cushion, or come up with other solutions,” said Schroeder.

Reports to Review Monthly

  • Balance Sheet
  • P&L Report
  • General Ledger

Schroeder recommends setting aside a few minutes on the third Thursday of every month (or an equally regular time) to sip your morning coffee and put your eyes on your Balance Sheet, P&L Report, and General Ledger.

“When you look at the Balance Sheet and P&L statements, review the comparatives. ‘What were my results this month compared to last month, last quarter, or last year?’ The time period will depend on your business and what you feel is the best comparison,” she said.

“I like this year vs. last year because it’ll show whether you’re growing. Other people might like month vs. month if they have a fairly consistent operation.”

She reminds us that a number on its own is information, but it doesn’t tell you whether things are changing. And that’s what you want to know so you can make decisions like whether you need additional resources or should ramp up marketing efforts to get more clients.

Before you move on, check in on the General Ledger to ensure that the debits and credits are being categorized to the right account.

“It’s important to have things sorted properly because you don’t want something showing up in the P&L report that should be in the Balance Sheet or vice versa. You can’t make good decisions with bad data.”

Reports to Review Quarterly

  • Item Sales Report
  • Revenue by Client Report
  • P&L Report
  • Balance Sheet

While some of these reports may be repeats from your daily, weekly, and monthly financial check-ins, Schroeder says you’ll look at them a little differently every quarter.

“You’ll see different trends when you look at these reports over a longer time period. Quarterly is a good time to see what or who are my top (and bottom) 10 revenue producers. Do I need to make any changes?” she said.

“It’s also important to look at costs. What’s the profit margin on my products or services? Am I producing enough revenue from these products?”

You can use this information to inform your marketing efforts and reassess whether the clients you’re currently working with are “worth” the effort. “In the accounting world, we talk about firing the bottom 5% of clients because they often take up the most of your time,” said Schroeder.

On the other hand, if you’re happy with the direction of your business, you don’t have to do anything with the information you get from this review. “If things are going well, maybe you send a thank-you to those top 10 customers or consider other ways to ensure customer retention.”

financial jargon

Other Times You May Need Financial Reports

Financial reports are essential at certain milestones of your business’ life cycle. Here are some of the big ones where reports play an important role.

Reports You Need at Tax Time

  • P&L Report
  • Balance Sheet (incorporated businesses)
  • General Ledger

Schroeder recommends pulling your P&L Report, Balance Sheet, and General Ledger for the previous calendar year sometime in March. If you hire a bookkeeper or accountant, these are the reports they’ll use to fill out your tax form.

Reports You Need When Seeking Investors or Securing a Loan

  • Balance Sheet (from last 2 years)
  • Income Statement (from last several years)
  • P&L Report (from last 2 years)

“Investors want to know that your business is profitable and that you don’t have a lot of debt. They basically want to know that your company is worth money and isn’t in trouble,” said Schroeder.

“They can determine that through the Balance Sheet and Income Statement, typically. If you’re a new company, you’ll have to do forecasted statements using assumptions based on your market research to make projections.”

Financial institutions considering approving a business loan will look at the same reports to determine the risk involved. “They’ll be assessing how likely it is that they’ll get their money back and determining the interest rate to charge. The higher the risk, the higher the interest rate.”

Unlike investors, they will want to see 2 years of business tax returns (for incorporated businesses) and 2 years of personal tax returns.

Reports You Need When You’re Growing

  • Balance Sheet
  • P&L Report

Are you looking at bringing on new people, equipment, or investing in a new workspace? Your Balance Sheet and P&L Report will show you how much cash you have and what’s coming in. However, Schroeder says you can’t discount intuition when it comes to making decisions for your company’s future.

“You’ll use your historical data from your reports to forecast the future, but you have to get comfortable with a bit of risk. You’re going to make some assumptions and judgments about what is going to happen in the future, and that usually means you’ll have to borrow some money.

“It’s not typical to be able to manage all that revenue coming in with the resources you have, especially not in a small business.”

She estimates that it usually takes 3 to 6 months to start covering the costs of new investments.

Reports You Need When Selling Your Business

  • Balance Sheet
  • P&L Report

When it comes to selling your business, it’s all about demonstrating its value. Prospective buyers will want to see your revenue and expenses to determine how long it will take to get their money back.

“Every industry has a different multiplier. Depending on how much net income is being earned or what the potential is for income to be earned in the future, that’s how long people will be willing to take the risk of earning the money back,” said Schroeder.

Overwhelmed? Outsource It

If the prospect of building in time at regular intervals to review your financial reports and make decisions based on the trends you find feels like too much for you, there are options.

CPAs like Schroeder work with small business owners to help them decipher their books and provide advice based on what they see. FreshBooks customers can be referred to accounting professionals who are FreshBooks certified. (Here’s how to choose an accountant that’s right for you.)

No matter how you take in the insights from your financial reports, one thing is for sure: The more you know, the more successful your business stands to be. Dig in!



about the author

Freelancer & FreshBooks Customer Heather Hudson has been a freelance writer for more than 17 years. As a small business owner, she understands the triumphs and challenges of life as an entrepreneur. And as a longtime FreshBooks customer, she’s always looking for ways to work smarter, not harder. You can learn more about her work at heatherhudson.ca.