De-Cluttering: 8 Monthly Financial Reports Small Business Owners Need

As a small business owner, you are likely to feel responsible for monitoring all aspects of your business to ensure it runs smoothly. A small business owner, like you, often juggles various important tasks yourself. Amidst all this juggling and running around, it becomes difficult to actually keep a sharp eye on every detail and every action of your business. How, then, can you get an effective and efficient overall view of your business without going into the details of each task?

It’s quite simple, actually – all you need is some important reports that summarize the health of your company in data points. You don’t really need a report on every single detail, as that would take up your staff’s productive time. Thoroughly reviewing just a few key reports monthly can be enough to keep you updated on how your business is really faring.

Key Financial Reports Every Business Owner Needs

Let’s take a look at what these key reports are.

Profit and Loss (P&L) Statement

This is the master statement that answers your most important and urgent question: Is your small business really making money? The P&L statement shows your profit or loss for a specific period by calculating exactly how much money you have left after deducting all expenses from your revenue.

If your P&L shows a reduction in gross margin, it means your direct production costs, such as labour and materials, have probably increased, or maybe you are selling your products at a highly discounted rate that’s eating into the revenue. If the P&L shows a decrease in net margin, then it’s time to begin cutting costs on overheads and look for some tax-saving tips from your accountant.

Comparing the P&L for the current month with that of the previous month and the same month of the previous year can provide deep insights into seasonal and annual discrepancies in sales and costs.

Revenue Report by Customer and Product

The Customer and Product Report gives an analysis of where exactly you make your most revenue: which customer brings in the most revenue, and which product or service is your bestseller. This is very handy for understanding just how vulnerable your business is to concentration risk or missed opportunities.

Suppose the report reveals that the high-cost product accounts for a tiny share of total revenue, while the low-cost product earns the highest revenue. Using this report, you can figure out a way to use your materials, time, and efficiency in the most optimal way possible to improve profitability.

Expense Report by Category

The Expense Report categorizes all your business expenses into useful categories, such as rent, materials, labour, software, subscriptions, and more. By carefully studying and revisiting each of these categories, you can zero in on the areas where cost-cutting is possible. Say, for instance, you invested in many subscriptions when you first established your business to stay connected to what’s happening in your industry. Over time, many of these subscriptions have been forgotten, but you might still be paying the subscription fees. The same holds true for unused vendors and services. By tracking defunct resources monthly, you can save a lot.

Budget Variance Report

This report is strict disciplinarian, showing you exactly where you’ve exceeded budget lines and by how much. Whether you have spent 20% more on marketing than was approved in the budget or have underutilized your technology budget, everything is revealed in this report. While some discrepancies may have a convincing explanation, others may not be ones you’re aware of.

Huge gaps in the projections, budgets, and reality spell danger for the business. You can use this report to plan, review, or revise your business budget or operations.

Cash Flow Statement

If profitability is the destination, cash flow is the track on which your business engine runs. A smooth and positive operating cash flow is imperative to the financial health of a small business. Profitability without consistent cash flow indicates delays in your accounts receivable. The cash flow statement highlights such payment issues, giving you an opportunity to improve your invoicing and follow-up system. This report can tell you if you have sufficient cash for daily operations and surplus cash to make any long-pending asset purchase.

Accounts Receivable and Payables Aging Report

Boiled down to its bare essentials, a business basically runs on two main factors: how much you owe someone and how much someone owes to you.

The Accounts Receivable Aging Report tracks who owes you how much. Accounts Payables Aging Report tracks how much money you owe to whom. These reports also give you an exact timeline of how long the delay in receiving or paying has been. Is it a current bill or invoice, or has it been 30 days, 60 days, or more than 90 days?

Any pending payments that have been overdue for 90 days or more in the Accounts Payables Report indicate potential cash flow problems and even a strained relationship with the vendor. On the other hand, similar delays in payment will also affect your cash flow, and you will need a better strategy to coax the client into paying. Hence, checking your clients’ creditworthiness beforehand is also important. The longer the delays in either report, the more it will adversely affect your cash flow and, subsequently, your entire business operation.

Cash Flow Forecast

Apart from the Accounts Payables and Receivables Aging Reports, the Cash Flow Forecast Report also gives you an early glimpse into potential inflows or crunches in your future cash flow. Using the above two reports and details of any recurring expenses or earnings, you can calculate a 13-week rolling forecast to predict upcoming cash flow speedbumps. This gives you enough time to plan for seasonal sales fluctuations, collect on delayed accounts receivable, and arrange for any high-value equipment purchases or investment plans.

Key Performance Indicator (KPI) Dashboard

Each business has different Key Performance Indicators, depending on its type. For instance, a hospitality business would focus on cost per plate, while e-commerce businesses would be more concerned with inventory turnover.

Monitoring your business’s vitals makes it easier to spot discrepancies and address issues early, before they become problems. For example, slow-moving inventory figures in the KPI dashboard could signal the need to revisit sales, current trends, and customer preferences, or even indicate pricing issues.

Reviewing and revising these financial reports monthly can keep you up to date on your business, address issues, and identify opportunities.

Contact KSSP Partners LLP in Markham / Richmond Hill to Help You with Business Financial Reports

Talk to a professional accountant to help you set up a system that can auto-populate data and generate monthly reports. At KSSP Partners LLP, our accountants and bookkeepers can provide services such as preparing financial statements and reports. To learn more about how KSSP Partners LLP in Markham can provide you with the best accounting and bookkeeping services, contact us online or by telephone at 289-554-5997.