What Are Monthly Financial Reports?
Financial reporting helps a company and their external stakeholders (shareholders, potential investors and lending banks) get a better understanding of the company’s current and future financial status. Crucial financial information is covered in specified time-period through daily, weekly and monthly financial reports. When a business owner examines financial trends from periodic statements, they are enabled to proactively manage the long-term profitability.
Findings from financial reports can improve internal business performance by helping them stay updated on any significant progress or changes in their financial status and cash flow.
Financial reports help a business determine:
- Whether they can effectively generate cash flow and where that cash can be used
- Specific details of a business transaction
- Identify potential issues impacting your profitability
- Evaluate if a company can pay off their debts
- Develop financial ratios that show their financial position
There is online accounting software that generates financial reports in a more digestible and visual way. These reports have interactive dashboard features to ensure a business has access to meaningful data.
These tools allow companies to:
- Make predictions based on accurate data
- Effectively plan out your budget
- Track your revenue, expenses, and profitability
- Improve the performance of your processes
- Create fully customizable reports
This article will also discuss:
3 of the Most Important Financial Reports for Small Businesses
Entrepreneurs can be intimidated by their accounting but choose them for it could cause them a lot of trouble and make them miss an opportunity for profitability. Financial reports provide value and insight to business bookkeeping that can help a company make more money.
Here are three important financial reports for small business owners to review to get a better understanding of their business.
- Balance Sheet
A balance sheet shows the financial health of a company at any given moment. Balance sheets are two-sided charts with three components – Assets on one side and Liabilities and Equity on the other. For your balance sheet to be properly balanced, the total of each of the two sides of the balance should be the same amount.
To calculate the relationship between the tree amounts, the following simple equations can be used:
Assets = Liabilities + Shareholder’s Equity
And for sole proprietors and partnerships:
Assets = Liabilities + Owner’s Equity
2) Profit & Loss Statement
A profit and loss statement is a business report that shows the revenues and expenses and resulting profit or loss of a business over a specific time period. In some cases, this report is referred to as an income statement. These records provide insight as to whether a company can generate profit by increasing revenue, reducing costs or both.
So, how do you prepare a profit and loss statement? Here’s a simple step-by-step process.
For each row, you will have a quarterly amount then a total for the year.
Step 1: Each row will have a quarterly amount then an annual amount
Step 2: Show your business Net Income or Sales for each quarter of the year. If you wish, you can break down income into sub-sections to show different sources of income.
Step 3: Itemize your business expenses for each quarter. Each expense should be shown as a percentage of Sales. All expenses should be equal to 100% of Sales.
Step 4: Show the difference between Sales and Expenses as Earnings. This is also referred to as EBITDA (earnings before interest, taxes, depreciation, amortization).
Step 5: Show the total interest on your business debt for the year and subtract from EBITDA.
Step 6: List (estimated) taxes on Net Income and subtract.
Step 7: Show the total depreciation and amortization for the year and subtract.
Result: This number should equal net earnings, or your business profit or loss.
3) Cashflow Statement
A Cashflow Statement shows every single incoming and outgoing transaction and how you spend and your earning your money over a period of time.
This statement takes a business’ net income (from a Profit & Loss Statement) and any non-cash transaction into account from operations, investing or financing activities to give a better idea of what happened to a company’s cash during that period.
If a company gets $100k in capital, but their Profit & Loss Statement shows a net income loss of $10k during the same period, their cash flow statement will show a $90k net increase in cash for that period.
A cash flow statement provides a comprehensive view of how a business operates, where it’s making money, and how to make choices about expenses. These are important details for potential investors to consider.
Cashflow statement reviews three types of activities:
- Operations: business functions needed to operate, including accounts receivable, accounts payable, and inventory.
- Investing: equipment depreciation, acquiring or selling assets, etc.
- Financing: acquiring debts or repaying loans which don’t affect a company’s bottom line, but they do affect the amount of cash in the bank.
5 Financial Stats from Your Reports to Help Your Business Grow
There are so many numbers to consider when you are doing financial reporting for your company, that it can be overwhelming. What are the numbers that are going to help your business grow?
Your Bottom Line – Profit
A great place to start is your bottom line. To find out how your business is doing checking your net income on your Profit & Loss Statement. This will tell you how much money your company has earned after expenses are paid out.
Next, spot any trends. Have those numbers gone upward, stayed flat or gone downwards? Understanding these trends can help you forecast your future profit.
For your business to be sustainable you need to be able to pay yourself and your employees what you want and the way to do this is for business owners to stay focused on the bottom line.
2) Expense Trends
If your business is growing but you’re not taking home money, there’s a problem. Often this problem is that your expenses are growing faster than your revenue. If your expenses are growing faster than your revenue, you’re bound to take less money home.
A way to avoid this problem is to keep track of your expense trends. On your Profit & Loss Statement, there is a line for Total Expenses. Look at this totally and it’s trend for the last 12 months and compare it to this number to the trend in your Total Revenue line.
Make decisions that ensure that your expenses are not growing faster than your incoming revenue. However, expenses might be higher than your revenue if you are making intentional long-term investments to grow your business – like buying new equipment or hiring employees.
3) Accounts Receivable
Accounts Receivable is where a lot of your revenue could be hiding as it is the money owed to your company. This is the sum that appears on your Balance Sheet is the sum of your unpaid invoices.
Improve your cash flow by following up with clients to pay these invoices.
4) Profit Per Customer
The best clients are not the ones that pay the highest fees but the ones who generate the most amount of profit. Often the expenses for you high paying jobs also incur a lot more expenses. If you can anticipate these expenses, you can increase your rate to ensure your profitability with that customer. It is vital to look at your profit per customer or per project.
This number is not typically included in reports from your accounting software, so it will need to be calculated at the end of a project. To make this estimate, take the total payment you received and subtract all the expenses to get the gross profit for the project. Then divide that profit by the number of hours you worked on the project to get your hourly rate.
Use this rate to compare between projects to see which have been the most lucrative. Now, you’ll have a better idea of what kind of projects to take that will earn you the most of amount money with the least time spent on it.
5) Number of Client Prospects
A boom and bust cycle in your business can happen when you are too focused on client work and have slowed down your efforts to attract new business. You can avoid the problems of a bust by tracking the number of prospective clients you have in your pipeline.
How many potential customers are you to talking about potential work? If the number is small, it is time to increase your marketing efforts to attract more business.
Even when you’re busy with client work it is important to keep your prospect list current and focus on your marketing to create the growth you want.