Knowing the ins and outs of the financials of your business is crucial for stability and long-term growth. Plus, keeping an eye on your finances helps you identify risks and set realistic goals for the near future. It can also help you be more reactive when sales numbers or cash flow change.
The Most Important Financial Reports You Need to Know in Business
Compiling these three types of financial reports regularly will help you plan for the future.
Your revenue or income statement shows how much money your business brings in regardless of expenses. It’s not a comprehensive report of your financial situation but tracking your revenues over time helps you measure growth.
Your income statement should reflect the total amount of your sales or the total amount of money that different revenue channels bring in.
Profit and Loss
A profit and loss report is a summary of revenues and expenses that indicate whether your business is profitable.
Add up the total amount of your sales, subtract the cost of the goods sold, and you’ll get your gross profit. You can then deduct taxes and operating expenses to calculate the net profit or net loss of your business.
Your business’ balance sheet is a snapshot of your financial situation. This report reflects your assets, liabilities, and the equity that owners or stockholders have in your business.
It tells a more complete story about your business since it reflects things like how you leverage loans and credit lines for growth.
Your balance sheet should include a column with your assets. List current assets like cash on hand and accounts receivables and long-term assets like equipment or real estate.
Include all your liabilities in another column, which should include your overhead costs, utility bills, total debt, taxes, payroll, stock issued, and more.
Your balance sheet is a valuable tool for managing your cash flow and ensuring that money comes in at a rate that allows you to cover expenses as they are due.
How Often to Check Your Financials
Publicly-listed companies need to release these documents quarterly, but there are benefits to compiling these reports monthly or even weekly.
Checking your financials on a weekly basis will help you notice trends in revenues and expenses. You’ll be able to anticipate shifts in demand or higher costs based on historical data after a while.
Compiling these different reports regularly can make you more reactive by noticing things like changes in your cash flow sooner.
Hiring a Professional to Manage Your Financials
A professional accountant can help you save time and avoid mistakes when managing your finances. It’s easier to stay on top of billing, file taxes on time, plan ahead, and even reduce costs with the help of a business account.
Why It’s Important to Stay on Top of Your Financials
Knowledge gives you an advantage. Keeping track of your financials will help you make better decisions for things like investments or financing for your business. It will also help you manage risks and plan for the future.
About the Author, James Webster
James Webster, founder and CEO of ROK Financial has almost two decades of experience within the financial services industry. His passion for helping small business owners and his innovative way of thinking, has allowed him to run multiple successful businesses including National Business Capital & Services. Under the National name, the team was able to help secure over $1 Billion in financing for small businesses nationwide.