Regularly reviewing your financial reports is crucial for any business owner aiming for growth and success. If you’re not doing this—whether due to a busy schedule or because the reports seem confusing—it’s time to start. Here are six compelling reasons you should monitor your financials reports regularly.

Which Financial Reports Should You Review?

Before diving into the reasons, let’s quickly go over the key financial reports you should be looking at, depending on your business’s complexity:

1: Statement of Financial Performance (Profit and Loss Report or Income Statement):

This report provides insights into your business’s performance over a specific period, such as a month or a financial year. It shows the revenue generated minus the expenses incurred, revealing how profitable your business is.

2: Statement of Financial Position (Balance Sheet):

This report displays the value of your business’s assets, liabilities, and equity. The Balance Sheet indicates the relative strength of the underlying business.

• Assets include cash in bank accounts, inventory, plant and equipment, accounts receivable and work in progress.
• Liabilities cover bank loans, credit card debt, accounts payable, equipment finance commitments and statutory liabilities.
• Equity is the difference between assets and liabilities and includes retained earnings and owner funds introduced.

3: Accounts Receivable Ageing Report (Aged Receivables):

This report details how much money is owed to your business at a certain date, segmented by the overdue payments (e.g., current, 30, 60, 90 days).

4: Accounts Payable Ageing Report (Aged Payables):

Similar to the Aged Receivables, this report shows who your business owes money to and segments the amounts by how overdue they are.

Why You Should Monitor Your Financial Reports

1: Gain a Deeper Understanding of Your Business

Regularly reviewing your Profit and Loss report gives you a clear picture of your business’s performance on a month-by-month basis. This understanding helps identify trends and anomalies in revenue and expenses, which can be critical for improving profitability. Comparing different periods or viewing a monthly P&L side-by-side can highlight these trends and help spot unusual expenses or mis-categorisations.

2: Provide Accurate Information for Lending

When applying for loans or overdrafts, banks and financial institutions closely examine your Profit and Loss report alongside your Balance Sheet. These reports provide a comprehensive view of your business’s financial health. Knowing your account balances and having accurate, up-to-date financials can streamline this process and improve your chances of securing funding.

3: Improve Cashflow and Reduce Bad Debts

By monitoring your Accounts Receivable Aged Summary closely, you can promptly follow up on overdue accounts, which often leads to faster payments. The risk of non-payment increases the longer an amount remains overdue, so managing these receivables actively is vital to maintaining healthy cashflow.

4: Maintain Strong Supplier Relationships

Regularly reviewing your Aged Payables report ensures you know of any outstanding or overdue amounts owed to suppliers. Paying suppliers on time is essential for maintaining good relationships, which can be crucial to your business operations and profitability.

5: Enhance Cashflow Management

Understanding how much your business owes and is owed allows for better planning. This foresight helps ensure there’s sufficient cash available when needed. Additionally, understanding profitability drivers and expense trends can aid in planning sales and marketing strategies to sustain and grow revenue. Read more about cashflow management here.

6: Make Informed Business Decisions

Your financial reports tell the story of your business. Understanding this narrative puts you in a stronger position to make informed decisions that affect your business’s profitability and long-term viability. Accurate, timely financial information is key to steering your business towards success.

Partner with Sharp Accounting for Better Financial Insights

Contact us if you’re unsure which reports are relevant to your business or need help understanding them. We can help you navigate your financials and make sense of the data, empowering you to make decisions that drive growth and success.

Your business’s success is our priority, and we are here to support you every step of the way.

The Essential SME Checklist for Growth + Profitability

Click here to download our Essential SME Checklist for Growth + Profitability; your roadmap to amplifying profitability and unlocking growth potential for SME businesses.