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Financial statements are more than just a set of numbers to founders. They can provide a clear mirror of the business and the way it can be going. While sales, customers, and growth often get the most attention, financial data can reveal important issues that are easy to overlook in daily operations. The numbers can create cash flow issues, higher expenses, or lower margins if not reviewed often enough in order to be profitable.
That’s why it is important for every founder to have a monthly financial review. You do not need to be a finance expert to understand the key reports. Financial reports can assist you in tracking revenue, managing costs, tracking cash, measuring profitability, identifying financial risks, and confidently making decisions.
Each of these reports offers a different view of your company’s financial condition, such as the income statement, balance sheet, cash flow and accounts receivable reports. When you look at them as a group, you will have a better sense of what works, what’s in need of attention and what steps you need to take next.
In this blog, we will dive into the 7 financial reports each founder should be reviewing every month and why each of them is important to the growth of a sustainable business.
Being able to see how much money you’ve made is not enough when running a business. Founders must have regular visibility on profitability, cash flow, expenses, working capital and overall financial health. Monthly key financial reports help identify problems and help in making better decisions for the business. Each founder should review the following 7 financial reports on a monthly basis.
The Profit and Loss Statement (P&L) is also known as the Income Statement. It reveals how your business is doing over a certain time frame. It gives an overview of the revenue, cost of goods sold, operating expenses and net profit or loss. These numbers should be analysed on a monthly basis to see if the business is increasing revenue and if there is an excess of expenses over revenue. It may also indicate shifts in profitability, operating expenses, and profitability of the enterprise.
Monthly Profit and Loss Statement analysis allows founders to make timely decisions about pricing, hiring, marketing expenses, and cost control instead of waiting until year-end.
Key figures to monitor – Revenue, gross profit, operating expenses, and net profit margin.
The Balance Sheet is a statement that will show the financial status of your company at a specific moment in time. It presents three sections: assets, liabilities and owner’s equity.
Founders can use this report to gain insight into the financial stability of the company, working capital, debt and net worth. It gives you an idea of the amount of money and other property that’s available for the company versus its debts. A monthly review of the Balance Sheet may also reveal an increase in debt, receivables or working capital. It’s particularly important to keep it up to date when preparing for business loans, investors, financial planning, or business valuation.
Key figures to monitor – Cash, accounts receivable, liabilities, working capital, and debt-to-equity ratio.
Even if a business is profitable, it can experience cash flow issues if it doesn’t have enough cash on hand to pay its staff, suppliers, rent and other expenses. Thus, the Cash Flow Statement is one of the most important reports that every founder should be familiar with. It records cash inflows and outflows from the business as a result of operating, investing and financing activities. Checking cash flow monthly can give you insights into your liquidity, cash position, burn rate and future cash needs. It can also be useful to prepare you in case of slow sales, big payments and unexpected expenses.
A healthy Profit and Loss Statement combined with weak cash flow can be an important warning sign that deserves immediate attention.
The Accounts Receivable Ageing Report can be used to monitor outstanding invoices and overdue payments if your customers are buying goods and services on credit. Typical periods for receipts include 0 to 30, 31 to 60, 61 to 90 and 90+ days. This enables you to more easily recognise customers that are continually late with their payments.
Monthly AR ageing analysis assists founders in enhancing cash flow management, collection methods and cash flow forecasting. It also enables your accounts team to follow up on payments that are late, which can make them hard to collect.
Key figures to monitor – Total receivables, overdue invoices, and Days Sales Outstanding (DSO).
The Accounts Payable Ageing Report shows how much your business pays to suppliers, vendors, contractors, and service providers. Examining this report monthly helps you plan upcoming payments, avoid late fees, and maintain good relationships with valuable suppliers. This report also gives you greater transparency of your cash usage and working capital needs. It will also help founders identify overdue bills and prioritise payments for them without putting pressure on their business cash reserves.
Key figures to monitor – Total payables, overdue bills, upcoming payments, and Days Payable Outstanding (DPO).
Creating an annual budget is only the beginning. Founders also need to compare the budgeted revenue and expenses with actual financial performance. The Budget vs. Actual Report identifies variances and illustrates areas of business that are under or over budget. For example, revenue might be less than expected or marketing or operating costs might be greater than planned. The monthly review of this report enables the founders to manage their costs, better financial planning, and to course correct in time, instead of finding big budget shortfalls at the end of the year.
Key figures to monitor – Revenue variance, expense variance, profit variance, and forecast accuracy.
Financial ratios turn large amounts of accounting data into easy to understand performance indicators. A monthly Financial Ratios Report can help founders quickly assess profitability, liquidity, efficiency, and financial stability.
Important ratios may include:
Monitoring month on month changes shows founders if the company is becoming more profitable and more efficient. These numbers also play a role in the planning of business growth, raising capital or evaluating financial performance
If you are looking to keep your books clean and clear, and have the confidence to run your business, then look at these 7 financial reports each month. By reviewing these seven reports, you will be able to see cash flow problems before they become emergencies. Be prepared to make better hiring and spending decisions and walk into the investor meeting.
The good news is you don’t have to do this alone. At Lekhakar, we help founders and growing businesses set up clean, accurate, and easy-to-understand financial reporting every month, so you always know exactly where your business stands. Whether you need help with bookkeeping, compliance, or building these reports from scratch, our team is here to make financial management one less thing you have to worry about.
If you’d like a professional to handle your monthly financial reporting, get in touch with Lekhakar today.
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