When running a business, it is important to keep track of the business finances, the best way of doing this is to keep track of your financial reports each month. You might not be looking at your financial reports monthly, either because you don’t have the time or you simply don’t understand them. However, it is vital you are looking at your them and we’ve listed the 6 key reasons below to help you focus on the crucial points. Before we dive into the reasons, we have highlighted the key reports and what they can show you.

The Profit and Loss Report:

This report tells you how the business is performing over a period, such as monthly or yearly. In general terms it shows your revenue for the period selected, along with your expenses and the total profit or loss. In simple words, it tells you how profitable your business is.

The Balance Sheet:

This report summaries all the business assets, liabilities and equity at a set date. The assets include things like bank accounts, plant & machinery, aged receivables etc. While the liabilities include things like bank loans, PAYE/Corporation tax due, aged payables etc. the equity shows the net position of these two figures, with the aim to always have a positive equity (i.e. the business owns more than it owes).

Accounts Receivables:

The accounts receivables show your unpaid sales invoices at a set date and is usually divided by the age of the debtor.

Accounts Payables:

The accounts payables show which purchase invoices are still owing to your suppliers at a set date, again these are usually divided by the age of the amount owed.

So, they are the key reports to pay attention to, but why take the time out of your day to look at these?

  1. to get a better understanding of your business, by looking at your profit and loss report monthly you can check how the business is performing month by month. It can also be helpful to compare periods, letting you know if your business is improving or starting to struggle. This report can also help you better understand what makes up your profit and where you may be able to improve on it, either by increased revenue or reducing expenses.
  2. accurate information for lenders, when looking at borrowing money lenders will want to see up to date and accurate information. By looking at both the profit and loss and balance sheet you can get a good idea what position the business is in and if you are going to be able to get the lending you are looking for.
  3. improving payment times and reducing bad debts, by using the accounts receivables report you can not only see who owes you but how long the amounts have been outstanding. You can then either chase any old amounts or may even find outstanding invoices you thought had already been paid.
  4. improving cash flow, this links in with the point above. You can keep better track of outstanding sales invoices and possibly improve on the time it takes to receive the money, which will result in a better cashflow. You can also use the accounts payable reports to keep track of up coming payments and plan accordingly to make sure you aren’t late on any payments, or possible even pay them early with the improved cashflow.
  5. better relationships with suppliers, following on from the above point. By using the accounts payable reports, you can keep track of what you owe and make sure that payments aren’t late, or possibly even make early payments. Both of which can massively improve your relationship with your suppliers, each in turn could lead to better prices or terms.
  6. better business decisions, the overall positive of all the above it is empowering you to make better business decisions. By combining all the reports you can gather a lot of information about your business and make far better decisions, putting your business in a much better position.

If you want to know how to make better use of these reports, or you need some help in understanding them, please get in contact with us.

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