What story do our financial statements tell us this month and year, to date? This was the question that was always directed at us by a former manager.  He believed that financial statements tell the story of how a business is run and the direction it’s going. Most businesses publish their profit and loss statements, and balance sheets every month. These are the standard reports included in most reporting packages. Usually, the management tends to believe that once these reports are published, the accounting cycle and analysis, is completed.

To move your business from reactive to proactive, the utilization of additional reports is required. Financial reports are similar to an onion. There is a need to peel back numbers in order to verify what customer, vendor, project, or service is driving variances. Below are common reports that can be used to get to the heart of all financial data.

Profit and Loss, and Balance Sheet by Month: Instead of looking at the data of the current month only, include previous months, so you can compare month-to-month actuals. You can identify missing bills, issues with accounts receivable, or cash flow.

Prior Year Actuals and Budget Comparison: When you are reviewing your current actuals to budget, include the month actuals and budget for prior years. If you are reviewing February 2019, include February 2018, this data can allow you identify opportunities and trends. This report comes in handy, it helps you to identify factors in different time periods.

Summary of Accounts Receivable: Many businesses do not understand how they can run out of cash, yet their revenue is over budget. Revenue is not cash on hand. Reviewing the accounts receivable will identify slow paying customers that are affecting incoming cash.

Job/Project Report: Job-based or project-based businesses should utilize a job/project report each month. The report will identify projects that are profitable, expenses that might be under or overstated, and margins. This report will help you plan and mitigate costs for future projects.

Cash Flow: Don’t overlook the cash flow statement. An organization can manage cash by identifying whether the timing of cash can cover upcoming expenses or new business ventures. It’s the most underutilized financial report, yet, the most crucial to the viability of businesses. Lastly, the cash flow statement is a tool to make financial decisions, such as; can you afford another staff member, purchase a building, or add another service?

If you utilize an accounting system such as Quickbooks or Xero, these additional reports are generated automatically.  Use your accounting system to your benefit, it helps you to be strategic in your business. Having the above reports generated for analysis, will be a game changer for your business.  You will see opportunities and operation tasks that should be improved upon. This will translate to the bottom line; an increase in profits.

Challenge: Create a cash flow forecast statement for the upcoming month. Then, compare it to the actual cash at the end of the month.  Do you have enough cash to pay for upcoming expenses?

Linda Diakite Karressy, President, Insight Financial Group LLC.

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