Understanding your financial reports—knowing your numbers—is critical to business success. It empowers you to make better business decisions, measure their impact, take corrective actions where necessary, and ultimately achieve better results.

By gaining insights into your financial reports, you can:

Monitor Business Growth

Determine if your business is growing or shrinking. Regular monitoring allows you to act quickly to correct any problem areas and identify areas of potential weakness in the business.

Identify Trends and Opportunities

Spot emerging trends in your business and respond accordingly. Identify opportunities to grow and add value to the business. Read more about using financial data to find trends and opportunities here.

Compare Expectations with Reality

Evaluate actual results against your budgeted expectations. Identify areas where your business is lacking or going strongly and work on problem areas.

Pinpoint Strengths and Weaknesses

Identify areas where your business excels and areas needing improvement.

Assess Business Value

Understand the overall value of your business. Understand areas that if improved would add the most value to owners or shareholders.

Make Informed Decisions

Use accurate data to guide your decision-making process.

How to Maximise Results from Your Financial Reports

Ensure Data Accuracy

Ask yourself, “Is the data clean?” This means all transactions should be correctly coded, and bank statements should be reconciled. Implement monthly procedures to maintain data accuracy, ensuring your financial reports reflect a true and fair view of your business.

Inspect What You Expect

Establish clear goals or targets for your business. Regularly review your financial reports to check if you are on track to meet these targets. Monitoring your progress helps you stay aligned with your business objectives and make necessary adjustments.

Know Which Reports to Use

Each financial report serves a unique purpose. The Profit and Loss Statement measures income and expenses, helping you track profitability. The Balance Sheet provides insights into your assets, liabilities, and net worth, offering a snapshot of your business’s financial health.

Conduct Both Horizontal and Vertical Analysis

Use horizontal analysis to compare current financial periods with previous ones, helping identify trends over time. Vertical analysis involves calculating each line item as a percentage of a base figure, such as total sales, providing a clearer picture of cost structures and profit margins. For instance, compare this year’s Balance Sheet with last year’s and evaluate each expense item as a percentage of sales on your Profit and Loss Statement.

Understand Report Types: ‘As At’ vs. ‘For the Period Ending’

Recognise the difference between ‘as at’ reports, like the Balance Sheet, which shows balances at a specific date, and ‘for the period ending’ reports, like the Profit and Loss Statement, which cover a period of time. This understanding is crucial for accurately interpreting your business’s financial status.

Choose the Correct Date Range

Always specify the appropriate start and end dates for the period you are analysing. Select month-end dates, such as 30 June, instead of mid-month dates, like 15 June, to ensure all income and expenses have been recorded and reconciled, providing a complete financial picture.

By mastering the fundamentals of your financial reports, you will gain deeper insights into your numbers and leverage that information to make smarter business decisions. Whether your goal is to grow your business or increase efficiency to free up your time, we are here to help you interpret your financial reports and set strategic goals for improvement.

Get in Touch

If you need help understanding your numbers or want to learn how to use financial reports to make better business decisions, contact us today. We’re here to help you achieve your business goals.

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