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What Do My Financial Reports Tell Me?

Barbara Steckly

Barbara Steckly

How do you decide what goes on between the sheets?

We are talking about your Balance Sheet, of course! What were you thinking?

In the world of business, your Financial Reports are a record of your past, your present and a doorway to your future. They record the results of your transactions during a specified period of time. Financial Reports provide key information that figures prominently into all your business decisions. You need to ensure that your internal reporting is being completed accurately and on time. Otherwise, you’re wasting time and money!

Imagine the annoyance of having to check with your employees to determine if and when you can spend your company’s money! There is a clearance on a piece of equipment you want, a fantastic price on office space, can you afford to say Yes? Can you afford to say No? If your data isn’t kept up to date, you will be waiting for your employees to finish entering transactions and pull reports regarding your current financial situation. This could cost you the deal of a lifetime.

Imagine the inefficiency of being unaware if your business is even profitable or not this quarter when you go to the bank to increase your line of credit or to qualify for a loan. First impressions count, especially in banking. Precise, well-presented financial reporting speaks highly of your accountability and organizational skills. It is your hard-earned money. You want to know where it is at all times.
Do you understand why your bank balance is listed as one amount on your bank statement but shows another in your accounting software? Which total reflects your actual available resources? Do you have enough to cover your Accounts Payable? Or (Heaven forbid) payroll? Without regular reporting, having that correct financial information at your fingertips, a lot can fall through the cracks.

Financial reporting is actually made up of several reports. Let’s start with the Balance Sheet. It is based on a simple equation - Assets = Liabilities + Equity. When you present your Balance Sheet you are giving people a snapshot of your company’s financial standing. The ratio of Assets to Liabilities tells people how well you can meet your obligations. The types of assets or how easily you can liquidate your assets will give people an idea of how long it would take to cover your liabilities if they were called in. Even having investments or savings accounts, show people that you are planning for the future of your business.
Your Profit and Loss Statement shows your revenue versus your expense for a given period of time. If you have multiple revenue streams then it will show which revenue streams are generating the most income for your company. The expenses are broken down by account, for example, Rent, Office Supplies, Cost of Goods, etc., and show how you have spent the company’s money in order to generate the revenue. A Profit and Loss Statement does not show loan payments, asset purchases or other financial obligations that are coming up. If you use the Profit And Loss Comparison Statements, they will show your revenues and expenses between two periods of time, for example, month to month comparison or year to year comparisons. This can be key in discovering fluctuations in expense or income. These fluctuations can show both opportunities in revenue streams and issues in expenses, either increased costs or theft.

Your Cash Flow Report shows you all money coming in and all the money going out so that you can plan for upcoming payments and ensure that you will have the cash to cover them. While the Profit and Loss Statement shows the money going out to expenses, the Cash Flow Report will also show the payments made on Liabilities such as Loans or Credit Cards, giving you a complete picture of your incomes and expenditures. This allows you to plan for major expenses that might be upcoming.

An Aged Accounts Receivable Report tells you who owes you money and can be set up to show how long they have owed you the money. This allows you to target specific outstanding accounts or even invoices strategically. It can also help you plan your write-offs to Bad Debt at the end of the Year. The Accounts Payable Report shows the same as information as the Receivables Report but for the amounts that you owe. This can help you make a plan on who needs to be paid next and how much needs to be paid out.

It is a good idea to also include a monthly Trial Balance. This report gives you a snapshot of the amounts in all your accounts on that date. This report is very helpful if you ever have an issue with your accounting software. Having a copy of this can help you re-establish your books, without having to track down every invoice or expense receipt you have already processed in the year.
With each of these reports or a combination of them, you can discover early on, any irregularities that could signify a much more serious issue like employee incompetence or embezzlement. Remaining on top of your financial reporting will highlight changes that need to be made in-house to enhance your internal systems and processes. You will understand exactly how much that outdated equipment is adversely affecting your revenue. Once you know your numbers, you can explore changes to product lines looking at Cost of Goods, Equipment or even product space.

Ah, that holy grail of business, a good profit margin!

Yet without the appropriate reports, knowing what your profit margin is on your various lines of revenue is just a guess. The concept of keeping on top of your profits is so integral to ongoing business survival that forward-thinking innovators like author and entrepreneur, Mike Michalowicz, suggests that you put your profits first. Rather than the traditional Revenue – Expense = Profit formula, Mike Michalowicz suggests working the formula from the profit end, Profit – Revenue = Expense. Using this formula, your business reports and industry information you can plan your future profits.
In the end, your financial reports are to you, as an entrepreneur, what X-rays are to a surgeon: the precise information you need to excel at your career. At Preferred Client Services, our expert team of bookkeeping professionals not only generates the complete array of essential monthly reports for our clients, we also teach you how to generate them yourself and how to interpret the results. Knowing what reports your accounting software produces, the formats available and where to find them can be time-consuming. You need the pertinent information in your preferred format for easy understanding and quick, informed business decision making. Let us help you discover exactly what your monthly reports reveal about your business so you can plan for your future.

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