6 Powerful Reasons To Watch Your Financial Reports.
Regularly reviewing your financial reports each month is crucial for any business owner. It’s a key practice that can provide you with the necessary insights to foster a successful business. We can offer you a summary of the essential reports you’ll need to achieve this goal.
Making time to look over your financial reports each month is an important task for any business owner. If you are not taking time to do this, either because you’re too busy, or perhaps you don’t really understand what you’re looking at and it doesn’t make sense to you, then here are 6 reasons we recommend you should start to.
But before we get our 6 reasons, let’s talk very quickly about which reports to look at. At a bare minimum, and depending on the complexity of your business, you should be looking at the following:
The Statement of Financial Performance – also known as the Profit and Loss report (P&L) or the Income Statement – tells you, as the name suggests, how your business is performing over a period of time, such as a month or a financial year. In broad terms it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is.
The Statement of Financial Position – also known as the Balance Sheet shows the value of the business’s Assets, Liabilities and Equity.
Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances.
Liabilities include things like Bank loans and credit cards, Accounts Payable, and Hire Purchase balances.
Equity is the difference between your Assets and your Liabilities and includes Retained Earnings and Owner Funds Introduced.
Accounts Receivable Ageing report (Aged Receivables) – this shows how much money is still owed to the business as at a certain date in time, and is usually segmented as to how overdue they are, or sometimes by how far past the invoice date they are. Generally, you will have Current, 30, 60 and 90 days columns.
Accounts Payable Ageing Report (Aged Payables) – this report shows who the business owes money to as at a certain date in time and, like the Accounts Receivable Ageing report, is usually segmented by overdue period.
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