The 7 Key Reports You Need to Monitor Your Business
Do you know your key reports? These reports will be the most commonly used in your business?
Here are the 7 key reports you should understand:
- Balance sheet. A summary of your business’s assets and liabilities at a particular point-in-time.
- Income statement. A summary of your revenue, minus the cost of goods sold which determines your gross profit. It is also known as the P&L or the profit and loss statement.
- Equity. The money or assets invested and retained in your business by the owners and/or shareholders.
- Cash flow statements. A report that summarises how much cash is going in and out of your business during a particular period of time. It calculates your current cash on hand and predict future amounts.
- Debt. Loans that need to be repaid, over a period of time, usually with interest.
- Accounts payable. Money you owe to suppliers and vendors.
- Accounts receivable. Money owed to your company from sales of your products or services.
Why It’s Critical to Understand Your Numbers
As a small business owner, you are most likely the “chief cook and bottle washer”, especially when it comes to budgeting, financial management and forecasting. Wearing all those hats, you need to be totally familiar with any blind spots that can affect your business viability.
Every industry has a number based achilles heel. If it is not carefully monitored and managed, it could cripple your business. For example, in the restaurant industry, it may be your food and labour costs as a % of sales. In the retail industry, it may be costs per metre or rental charges. In a consulting service, it may be revenues per FTE. In manufacturing, it may be stock turnover or % of defective returns.
No matter what your business is, you need to know your critical numbers. Successful business owners monitor them regularly and compare them to key industry ratios.
For example, if your food costs as a percentage of sales are 41% and the industry average for your size and type is 28%, then that’s a red flag that something is very, very wrong. Your dashboard or scorecard will provide you with warning lights that tell you when proactive action is needed.
Your profit and loss statement tells the most important story about how your business is performing. This is where the results of your efforts and successes are most often expressed. Because of this, many small-business owners don’t focus on their balance sheet and what story it’s telling.
That is a big mistake. You must be intimately familiar with the details of your balance sheet. Those details will have an impact on your business’s ability to execute your growth plan.
Unfortuantly, all small businesses will inevitably encounter financial or cash flow problems—it’s not an “if” but a “when”. So having the right business processes and systems in place is extremely important. They will give you visibility of issues, and help you make informed decisions when there’s a problem. The complexity and size of your business will usually dictate the types of systems and processes that you need. But a system and process for analysing information is necessary even for a smaller, less complicated business.
There’s an saying that “We manage what we measure.” Even owners of small businesses need to act like a CFO when it comes to developing internal financial reports and dashboards. Get into the habit of producing reports, and reviewing the results. Make sure you share financial information and with your advisory board (if you have one), and the key leaders of your team. If you don’t have an advisory board, you should consider retaining a coach, consultant or mentor that you can discuss your key numbers with openness and confidentiality.
Top 5 Tips to Manage Your Business Finances, Without Going Broke.
Do you want to learn how to read you business numbers and get you “financial” act together? Our Top 5 Tips guide will also show you the 5 essential reports every business owner needs to find the hidden profits in your business.
Amanda Dyason, Founder of ProfitSmarts
We help Australian business owners increase profits, accelerate cash flow and master their financial management. We believe life is too short and precious to be stuck in an under performing business delivering mediocre results.
ProfitSmarts gives you more Profits and consistent Cash flow, putting you back in Control. Because when you get business right, the results are simply amazing.