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5 Financial reports you need to understand

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The growth and expansion phase of any business is exciting. It creates new opportunities, attracts new customers, and generates more revenue and higher profits. But if you or your team don’t understand financial reporting or have the skills to analyse these reports, you’ll struggle to make informed decisions about how best to grow your business.

Financial reporting is one of the most critical business processes because it gives you a comprehensive review of monthly, quarterly, or annual financial data to use to drive better business performance and results.

Having access to and understanding your company’s financial performance and stability helps you to:

  • Improve business agility and communication with finance partners
  • Ensure your business is compliant
  • Maintain transparency with external stakeholders
  • Track and optimise cash flow.
The 5 financial reports you need to understand

To ensure you have your finger on your business’s pulse, you not only need to understand but also review and analyse each of these reports monthly:

1. Profit and loss (P&L) statement

This is also known as your income statement and summarises your profit or loss over a certain period. This report shows your total income, total expenses, and your net profit or loss calculated as total income less total expenses.

2. Balance sheet

Your balance sheet is a summary of your business’s financial position at a specific time and takes your total assets and total liabilities, as well as shareholders’ equity, or investments and retained earnings into consideration. This includes cash, investments, equipment, property, stock and accounts receivable, as well as liabilities such as loans accounts payable, salaries, rent, taxes and utilities. This report shows your liquidity and ability to pay short-term debt.

3. Cash flow statement

Your cash flow statement reveals what you expect to receive and spend over a specified time. You use this report to see where you’re spending most cash, how to make decisions about budgeting and spending and to determine if there are roadblocks ahead.

4. Debtors’ reports

Knowing who’s paid and who hasn’t is essential for managing your cash flow. An aged debtor’s report allows you to proactively manage debt.

5. Budget vs actual income and expense reports

To check your actual spending against your budgeted or forecasted spending, this report is essential to determine how you’re trading.

Speak to your accountant about regular access to these reports and for assistance in understanding what they mean for you and your business. If you’re not getting timeous reports that help you understand your company’s health and give you the confidence to make good decisions call Counteractive today for a free consultation.

For a free consultation, call us today.

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