A question I am often asked by my business owner clients is “what reports should I order in order to stay on top of my business?”
Now this differs slightly from company to company. For example, if you are a retail store, you will automatically have daily figures available to you as part of your normal process. However, most companies should request weekly, monthly, and quarterly reports.
WHY DO I NEED TO READ REPORTS!
Before I review the reports in detail, I know that a lot of people don’t like to look at their business numbers. And usually this is because they don’t know what they are looking for. So usually their accountant or bookkeeper (or receptionist!) gives them a monthly report, they look at it while they hold their breath, and then sigh in relief if it shows a profit, or grimace and curse when it shows a loss. But usually by the time they get this report, it’s too late. The financial status of your business should be on your mind every day, not something you look at once or twice a year when you run out of cash.
REPORT FREQUENCY
The first thing to decide is how often you need to view the reports. I suggest a minimum of monthly, if not weekly. Sometimes this can depend on whether you have a full time accounting person or only come in once a month.
TOP TIP: MAKE A NEW YEAR END EVERY MONTH
To help you know what’s going on in your business, one of the first things you should implement in your business is the culture of having a New Year’s Eve every month. By that I mean… you want to make sure that each income and expense figure is recorded according to the month it was incurred. If you insist on this kind of culture, you will start to receive accurate numbers. So think back to the end of the year each month and close all the financial data for each month. That way, you’ll know your reports fully reflect the state of your business and you’ll get accurate profit and loss reports and can help you identify trends in your cash flow.
Regarding reports, if you have a full-time person looking after your reports, you should have a weekly meeting with them to review the reports. To make this process easier for you, see the ‘Essential Financial Management Templates’ workbook that you can purchase on our website. This workbook has a standard financial meeting agenda that will help guide your meeting to be effective and efficient.
When you meet with your account manager, you’ll want to make sure you have all the reports in advance, before the meeting, so you have time to review them and highlight any discrepancies that you can later address during the meeting.
YOUR WEEKLY REPORT PACKAGE
So what information do you need to know if your business is doing well or not? Well, your weekly report package should consist of the following five reports (by the way, a sample copy of each of these reports is also included in the workbook I mentioned earlier):
1) A Profit and Loss Report – Must be provided weekly (if meeting weekly), as well as a month-to-date and year-to-date report. So that’s actually three reports in total!
2) From there, you would request a copy of your old Accounts Payable. This report shows a list of everyone you owe money to and when it is due, or if it is past due. If there are amounts that exceed your suppliers’ terms of trade, you’ll want to know why. If it is due to cash flow, then check the cash flow analysis report to see when they will be paid. To maintain a great relationship with your provider, you need to let them know.
3) Another essential report is your old accounts receivable. This is where you can clearly see who owes you money and if they have any amounts due to you. This allows you to track charges long before they are due. As part of your financial management systems, you should have a standard tracking system. For example, if a customer has exceeded their trading terms by 7 days, what happens? Do you follow up with a quick phone call to verify receipt of the invoice? If it’s 14 days – what happens – and so on.
If you refer to the ‘Essential Financial Management Templates’ workbook I mentioned earlier, there’s also a list of demand letters designed to help you when you need to get a little more serious about collection. But again, old receivables are essential because you need to see when your money is coming in, so you can pay your suppliers and employees their salaries without dipping into your own personal cash reserves.
4) This brings me to the next report: a cash flow analysis. This report should be prepared by your bookkeeper and describes when money is coming in and money is going out. You can then see if there are any shortfalls so you can plan ahead to cover them. You may need to transfer money from another account, or you may be looking for pending payments. What you don’t want to find out when you go to transfer the money is that there is nothing in the account!
Believe it or not, this is often the least used financial report, and yet it is the most important. You wouldn’t believe how many bookkeepers or accounting people don’t either. It’s not so much that it’s difficult to produce, but it’s a working document, which means it needs to be updated regularly. But stick with this one, even if the people on your account try a mini-riot, because it’s a lifesaver for your business.
The ‘Essential Financial Management Templates’ workbook I referred to earlier on our website contains a fantastic cash flow analysis report that will save you and your team a lot of time.
5) The other essential report to have is the Bank Reconciliation. If your bookkeeper works full time, you can do this on a weekly basis using your bank’s online reports. If it is monthly, they will have to wait for the bank statement to arrive before they can finish. Keep them in the loop on this though: This report shows that the necessary process has been done to ensure that the end of the month has been closed and that the cash in the bank and any other payments or receipts are posted. Basically, a bank reconciliation is done to ensure that the amounts going in and out of your bank account are accurately reflected in your accounting software package.
WORKING WITH YOUR ACCOUNTANT
I would also recommend requesting that your financial controller automatically send a copy of your monthly reports to your accountant. This way, your accountant can see where you are headed from month to month. Depending on the size of your business, you can set up regular meetings with your accountant, either monthly or quarterly, to discuss those reports and your financial plans for the coming month.
Once you receive these reports regularly, you will find that you become much more powerful in your business and your finger is never far from the pulse.