A question I often get asked by my business owner clients is “what reports should I order so I can 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 reviewing the reports in detail, I know that many people do not like to look at the numbers of their business. 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 holding their breath, and then breathe a sigh of relief if it shows a profit, or grimace and swear when it shows a loss. . But usually by the time they have this report, it’s already 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 you need to decide is how often you need to view reports. I suggest a minimum of monthly, if not weekly. Sometimes this can depend on whether you have a full-time accounting person or if they only come once a month.
TOP TIP: MAKE A NEW YEAR’S EVE EVERY MONTH
To help you know what’s going on in your business, one of the first things you need to 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 in which it was incurred. If you insist on this type of culture, you will begin to receive accurate figures. So think at the end of the year each month and close all the financial data for each month. That way you know your reports fully reflect the state of your business and you’ll get accurate profit and loss reporting and can help you identify trends in your cash flow.
Regarding reports, if you have a full-time person who takes care of your reports, you should have a weekly meeting with them to review the reports. To make this process easier for you, check out 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 up front, before the meeting, so you have time to review them and highlight any discrepancies that you can then 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’s due, or if it’s past due. If there are amounts that exceed your vendors’ 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 keep track of collections 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 terms of trade by 7 days, what happens? Do you follow up with a quick phone call to verify that you received 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 is also a list of demand letters designed to help you when you need to get a little more serious about collections. But again, old receivables are essential because you need to see when your money is coming in, so you can pay your vendors and employees their wages 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 comes in and when money goes 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 do them 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 it 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 posted on this though – this report shows that the necessary processing 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 performed to ensure that the amounts going into 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’re going 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 next 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.