Over the last couple of years, priorities have changed for many businesses. Customer behaviours have shifted, and revenue streams have had to pivot and evolve to create a viable business model.
As a business owner, it’s never been more important to have a good grasp on your finances.
To track, monitor and drive your financial performance in this new business world, it’s increasingly important to have a handle on your key financial reports and metrics.
Getting to grips with your financial reports
In the past, extra cash in your business may have been seen as a surplus that needed to be spent; however, recent years have shown us that having these reserves is vital for the survival and long-term health of businesses.
To truly be in control of this cash, it’s important to examine your accounts, financial reports and dashboards and see the true story behind your financial position.
So, what are the key reports to focus on?
Let’s take a look:
Your budget is the financial plan tied in with your strategic plan. In essence, your budget approximates the money it will take to attain your key strategic goals and the revenue (income) and profits you hope to make during this period. It’s a benchmark you can use to measure your actuals (historical numbers) against, allowing you to see the variances, gaps and missed targets over a given period.
A cashflow statement shows the flow of money into and out of your business. Understanding these cash inflows and outflows in detail allows you to manage the process and aim for a ‘positive cashflow position’ – where inflows outweigh outflows. In an ideal positive scenario, you have enough liquid cash in the business to cover your costs, fund your operations and generate a profit.
Forecasting allows you to take your historic cash numbers and project them forward in time. This will enable you to see where the cashflow holes may appear weeks, or even months, in advance – and give you the time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices (aged debt) or applying for additional funding.
The balance sheet shows you the company’s assets, liabilities and equity at a given point in time. In a nutshell, it’s a snapshot of what the business owns (your assets), what you owe to other people (your liabilities) and what money and profits you currently have invested in the company (your equity).
The balance sheet is useful for seeing what stock and equipment the business owns, how much debt (liabilities) you’ve worked up and what the company is actually worth – all incredibly useful information to have at your fingertips when making big business decisions.
Profit & Loss
Your profit and loss report (P&L) gives you an overview of the company’s revenues, costs and expenses over a period of time. Whereas the balance sheet is a snapshot, your P&L is more like a moving video. It shows you how your finances are progressing by demonstrating how revenue is coming in and how the costs/expenses are going out (rather than cash coming in and going out, as you see in your cashflow statement and cashflow forecasts).
Talk to the team at Kennedy Cross about accounting and financial reporting for your business. We’ll run you through the key reports in your accounting software and can help you track performance, take action and prepare your company for surviving the new business normal.