What financial reports should I be looking at?

Several months ago I led a small business financial workshop on making investment decisions at a conference, and one of the questions that came up during Q&A was which financial reports a business owner should be looking at on a regular basis.  It’s a good question, I felt that I should address it here on the blog.  I’ve mentioned financial reports before–and in fact have a course dedicated to helping business understand them better (see the course directory at the learning portal), but don’t recall ever going down the list and explaining the purpose behind them.  Here’s the list, the rationale behind them, and best of all, once you know how to decode them they’re easy to understand and can help a ton in making the right decisions for your business.

Balance Sheet

‍
Simply put, this is the net worth statement for the business.  How much there are in assets, less how much is owed out in liabilities.  The breakdowns matter too: are the assets in bank savings, in accounts receivable, in equipment, etc.?  For example, if the money is mostly in accounts receivable, then how collectible is it and how soon will we set it?  It’s not just a matter of having a positive net worth in the business, but what it consists of.

Profit & Loss

‍
This seems to be what most people think of in financial reports.  Did we make or lose money?  How did we make it?  Where did we spend money?  Pretty straightforward stuff.

Now at this point one might think that we’re through, but if we’re going to get a clearer picture of the business then we need to look deeper.

Accounts Receivable Aging

‍
If your business sells products or services to customer on terms, and you’re waiting for payment from them, then you need to know who owes you, how much they owe you, and how aged the receivables are so that you can monitor how things are going and follow up on collections.  This report is effectively drills down into the accounts receivable number on the balance sheet, so if the balance sheet says there’s $100,000 outstanding, this report will show that breakdown by customer.

Inventory Valuation

‍
If your business has inventory, this report shows what those items are, how much their purchase value was, and other details to help you make decisions such as whether or not you need to reorder inventory or if certain items aren’t moving.

Accounts Payable Aging

‍
This is the third report that is a good supplement to the balance sheet, since it shows the breakdown of what you owe your vendors and suppliers.  Just like the accounts receivable aging report, this shows, name by name, how much you owe.

Profit & Loss by Month

‍
This handy report is a cross tabulated profit and loss report, with a column for each month within the period you’re reviewing.  The reason it’s especially handy is because it gives a clearer picture about what an average month looks like while unusual activity stands out when reviewing it.

Profit & Loss versus Budget

‍
One of the best ways to manage and control your firm is to look at how much is being made and spent compared to what your plans were.  Are things better than expected?  Then maybe there’s room to invest in the business.  Are they worse than expected?  Then look to see where things are off compared to the budget and see if they can be brought under control.

Profit & Loss Year to Date versus Last Year to Date

‍
This is another way of managing and controlling money: compare how the business is doing this year compared to last year, and see what is better and what needs improvement.

Income by Customer

‍
This supplement to the profit and loss report helps show who your most valuable customers are.

Income by Product / Service

‍
Similarly, this report breaks revenue down by your different products or services.

Expenses by Vendor

‍
Conversely, this report shows how much your paying your different vendors, helping you make decisions about how to control spending.

As you can tell by now, there are two basic reports–the Balance Sheet and the Profit & Loss report–and everything else is a supplement to help explain the numbers on those two reports.  This might look like a lot, but stick with me here at Your Money and Your Business and we’ll see how these reports all work together to help you take control of your business’s bank account.