Cash Flows During The First Year Of Operations For The The 5 Essential Financial Reports You Should Be Asking For in Your Business

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The 5 Essential Financial Reports You Should Be Asking For in Your Business

A question I am often asked by my business owner clients is “what reports should I be looking for to keep my finger on the pulse of my business”.

This varies slightly from company to company. For example, if you are a retail store, then you will automatically have daily figures available as part of your normal process. However, most businesses should be looking for weekly, monthly and quarterly reports.

WHY SHOULD I READ REPORTS!

Before I go through the reports in detail, I know many people don’t like to look at the numbers in their business. And usually it’s because they don’t know what they’re looking for. Well, usually then the accountant or bookkeeper (or receptionist!) gives them the monthly report, they look at it with bated breath, and then either breathe a sigh of relief if it shows a profit, or grimace and curse when it shows a loss. But usually by the time they get this report, it’s too late. The financial health of your business should be your top priority every day – not something you look at once or twice a year when you run out of cash.

REGISTRATION FREQUENCY

The first thing you need to decide is how often you need to see the reports. I suggest a minimum of monthly, if not weekly. This can sometimes depend on whether you have a full-time accounts person or if they only come in once a month.

TOP TIP: END THE YEAR EVERY MONTH

To help you know what’s going on in your business, one of the first things you need to implement in your business is the culture that every month ends the year. By that I mean… you want to make sure that every income and expense is recorded according to the month in which it was incurred. If you insist on this type of culture, you will start to get accurate numbers. So think about the end of the year each month and close all financials for each month. This way, you know your reports fully reflect the state of your business and you get accurate profit and loss reports, which can help you identify trends in your cash flow.

Regarding reporting, if you have a full-time person taking care of your reports, you should have a weekly meeting with them to go over the reports. To make this process easier for you, take a look at the ‘Basic Financial Management Templates’ workbook which you can buy from our website. This workbook has a standard financial meeting agenda to help you run your meeting efficiently and effectively.

When meeting with your accounts person, you want to make sure you have all the reports in advance – before the meeting – so you have time to go through them and highlight any inconsistencies that you can then resolve during the meeting.

YOUR WEEKLY REPORT PACKAGE

So what information do you need to know if your business is doing well or not? Your weekly report package should consist of the following five reports (by the way, a sample copy of each of these reports is also included in the workbook I mentioned earlier):

1) Profit and Loss – this should be delivered weekly (if you meet once a week) as well as a month to date and year to date report. So that’s actually three reports in total!

2) From there you would request a copy of your old commitments. This report shows a list of all the people you owe money to and when it’s due – that is, if it’s overdue. If there are any amounts that exceed your supplier’s trading terms, you want to know why. If it is due to cash flow, then you look at your cash flow analysis report to see when they will be paid. To maintain a good relationship with your supplier, you need to communicate this with them.

3) Another important report is your old receivables. Here you can clearly see who owes you money and whether there are any outstanding amounts owed to you. This allows you to track the payment long before it is late. As part of your financial management system, you should have a standard tracking system. For example – if a client has exceeded their trading terms by 7 days, what happens – do you follow up with a quick phone call to check they have received an invoice. If it is 14 days – what happens – and so on.

If you check out the ‘Essential Templates for Financial Management’ workbook I mentioned earlier, there’s also a list of demand letters designed to help you when you need to get a little more serious about collecting. But once again, accounts receivable are key because you need to see when your money is coming in—so you can pay your suppliers and employees their wages without having to dip into your personal cash reserves.

4) This brings me to the next report – the cash flow analysis. This report should be compiled by your accountant and should indicate when money is coming in and when it is going out. Then you can see if there are gaps so you can plan ahead how to cover it. It may be that you need to transfer money from another account – or you may be chasing outstanding payments. What you don’t want to find out when you go to transfer money is that there is nothing in your account!

Believe it or not, this is often the most underutilized financial report—yet it’s the most important. You wouldn’t believe how many bookkeepers or accountants don’t work. It’s not so much that it’s difficult to create, it’s a working document which means it needs to be updated regularly. But stick with this, even if your accounts people try to rebel a bit about it, because it’s a lifesaver for your business.

The ‘Essential Templates for Financial Management’ workbook I mentioned earlier, which is available on our website, contains a fantastic cash flow analysis report that will save you and your team a lot of time.

5) Another key report to have is the bank reconciliation. If your bookkeeper is full time, then they can do this weekly using your bank’s online reports. If it is monthly, they will have to wait for the bank statement to arrive from the bank before they can finalize. However, follow them for this – this report shows that the necessary process has been carried out to ensure that the month end has been closed and that cash in the bank and any other payments or receipts have been accounted for. Basically, bank reconciliation is done to ensure that your amounts coming in and out of your bank account are accurately reflected in your accounting software package.

WORKING WITH YOUR ACCOUNTANT

I would also recommend requesting that your financial controller automatically send a copy of your monthly statements to your accountant. That way, your accountant can see where you’re going from month to month. Depending on the size of your business, you could then set up regular meetings with your accountant – either monthly or quarterly – to discuss these reports and your financial plans for the coming month.

Once you receive these reports on a regular basis, you will find that you become much more empowered in your business and your finger is never far from the pulse!

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