I've written previously about a month end process to help you improve your reporting processes.
This was designed to create a structure about how you manage your internal finances. To help you get organised which helps you get on top of your taxation planning and compliance and also to provide relevant, reliable and timely advice to management and owners to base decisions on.
In this blog, I’m going to work through the financial reports that should be standard in every small business’ financial review.
Extra reports should also be included specific to your business, and its Impact areas – those areas that have a direct impact on your financial performance (such as reviewing website impressions - > click through rates -> conversion rates -> leads -> leads converted).
- This month v forecast for the month
- This Quarter v forecast for the quarter
- Year to Date v forecast for year to date
- This month v this month last year
- This quarter v this quarter last year
- This Year to date v Year to date last year
- Cash summary this month
- Balance sheet this month v last month
- Aged Receivables
- Aged Payables
If this month’s turnover is $150,000 that could be great for one business, but if forecast was $200,000 (or 33% higher), then $150,000 really isn’t that good.
So, reviewing this month, quarter and year to date against what you had forecast at the start of the year is the only way to know if you are on track to meet your expectations. If you’re missing forecast, what impact is that going to have on future cash flow and working capital?
This is where you need a rolling forecast, that updates with actual data as the period ends. It then provides a revised forecast for the rest of period (week, month, quarter, year) and tells you, based on what’s actually happening, what your cash flow is going to look like.
This is why forecasts are so important.
This period v this period last year
Comparing this year against the same time as last year will tell you whether you’re growing (or declining). This is important to know, particularly for seasonal businesses. If your October is usually busy, but not September, then you want to be comparing apples with apples. Comparing a quiet month with a busy one, isn’t going to give you much context of what is going on.
But the analysis of this year versus this period last year is not just a review from a profit perspective, but also from a return on investment perspective;
- Is that new marketing campaign working?
- Is that new product/service/pricing model working?
- Is the staff training, improvement in systems and processes achieving the financial return we expected?
And if you haven’t made any changes in your business over the last year, how has that hope and pray for a different result strategy panned out?
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Profit’s great, but you can’t eat it. Tom said it best;
This report is an absolute must for every business owner. It tells you how much cash came in, and where the cash was spent; which expenses; which assets you bought or debt you paid down. It answers the age old question of where’s the cash?
Run it, read it, understand it.
Wouldn’t it be nice to know how much you owe to suppliers, the ATO, on super, or how much you’re owed by customers?
Aged Receivables & Aged Payables
The balance sheet shows you in total how much you’re owed and owe, and these ones show you exactly who, on what invoices, and how long they’ve been outstanding. These reports give you the details to pick up the phone and get paid.
And that’s it. Over time you can build these report packs out and make them more and more useful. If you're in e-comm aged receivables probably isn't that important, but stock reports would be.
It doesn’t have to be rocket science but using the right reports can make a world of difference to your business and your decision making. Don’t wait until next month. Run them now and if you don’t understand them, check out our accounting and business consulting services where we help small and medium business owners understand their numbers and what to do with them.