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If you are like me, you love to read business books. After reading so many, my gauge of whether it’s a worthwhile read is if I can implement or tweak one thing for my business.

Reflecting back on the best ones, I have seen some patterns. In the early days of any business, sales should be your top priority. You have to get your product or service in the hands of your customers so you can begin to understand what they like and don’t like about what you sell.

Ring the f’ing cash register - Sage advice for any new business owner

However, once you start to make some sales and start growing, you begin to have a bit of a problem. Understanding how you are performing financially becomes critical in raising money, setting prices, investing in marketing, not to mention just staying compliant with tax authorities. Almost every book on running a business mentions that the best entrepreneurs know their numbers inside and out.

But what should you be looking at and where do these numbers come from?

If you have an accountant already, make sure you are receiving these reports and that they are taking the time to explain them to you. If you don’t have an accountant, this should arm you with some questions you need to ask when hiring one.

Income Statement

• What is it? It shows your profit or loss for a given period.How often? Seeing these numbers monthly is common, but you should see a column with a rolling 12 months to show you a full cycle (month-to-month can fluctuate a lot)
• What does it mean? It shows your revenue and different categories of you expenses. Pretty much where your money is coming from and where it is going.
• What decisions can it help with? Well, it can tell you if you are making a profit, but it can also show where you are spending too much (or not enough). When customized to your business, it can also help show you how much more in sales you need before profitability starts to leap forward.

Balance Sheet

• What is it? It shows your financial position: how many assets you hold versus what you owe (the net being what you own).
• How often? You will want to see this report in concert with your income statement to make sure you are turning profit into cash and that you can meet all your obligations.
• What does it mean? It outlines the things you own like cash, accounts receivable and fixed assets. It shows what you owe as well: accounts payable, sales tax payable, long-term debt, etc. The remainder is your equity - what you own in your business.
• What decisions can it help with? It can tell you lots! You can see how long it’s taking you to collect money from your customers and whether you need to get more financing to cover payments coming due.

Cash Flow Statement

• What is it? It’s similar to your income statement, but shows it on a cash-basis. Where is your cash going to and coming from.
• How often? We like to see this weekly, but monthly is common too.
• What does it mean? Our weekly version shows your cash receipts from customers, your payments to suppliers, employees and the government and also cash coming in and going out from other sources like loan payments, equipment purchases, etc.
• What decisions can it help with? Over time you will get a good idea of whether you are generating cash consistently or burning it. It will also show you the major areas of cash generation or burn, such as operations (just making money through selling stuff), financing (through loans and other financing) or investments (buying or selling new equipment, etc.). This can help to build an understanding of what you will need new financing for growth or seasonal ups and downs.

Accounts Receivable

• What is it? It shows you who owes you money, how much and for how long.
• How often? You will want to see this report weekly.
• What does it mean? It will show you in detail who is slow to pay and who needs to be followed up with. It’s critical to be turning sales into cash if you want to keep your doors open.
• What decisions can it help with? It’s going to show you who your slow-paying customers are and whether they need to start paying a deposit. You may need to tighten who you give credit and payment terms to.

Accounts Payable

• What is it? It shows you who you owe money to, how much and for how long.
• How often? You will want to see this report weekly.
• What does it mean? It will show you in detail where your cash could be going over the next 30 days or so.
• What decisions can it help with? Because cash can get tight, you can prioritize which vendors you want to pay on time and which ones might be okay with a late payment.

Other Useful Reports

Bank balance

Looking at your bank balance daily is a good practice. Ask yourself: what’s the cash situation and is it possible that you will run out today or in the next few days?

Key Performance Indicators

These will vary by business: (a key performance indicator (KPI) is a quantifiable measurement used to evaluate the of your business):

• What is your lifetime value of a customer?
• What are your customer satisfaction ratings?
• What is your labour productivity?
• What is your net income as a percentage of gross profit? (Target 10-15%)
• Monthly/Annual Recurring Revenue
• Revenue Growth
• Accounts Receivable turnover

Keeping an eye on the key drivers of your success and watching them improve over time is a motivating (and profitable) practice to foster.

How ÐßÐßÍøÕ¾ Works

All of our bookkeeping packages come with reporting (monthly income statement and balance sheet). We can increase this frequency to weekly to provide you with cash summary, Accounts Receivable and Payable reports as mentioned above.

We also offer further options for additional management reports to dig deeper into the numbers to understand your business in more detail.

If your financial management is lagging or you just want to up your reporting game, reach out here. We’d love to show you more about how we do what we do: build great financial systems so that you can run your successful business (and life).