Business owners make the best decisions when they are completely informed about the financial health of their business. The best way to stay informed about your business is to regularly track key metrics and analyse your financial reports.
Going through numbers and graphs isn’t the most exciting or glamorous part of being a business owner. But it will certainly make a huge difference to your cash flow, profitability and resilience!
Why should you analyse your financial reports?
Financial statements present (in dollar terms) the stories of enterprise. Whether that’s a business or company, a trust, superannuation fund or non-profit organisations. Financial reports present on the history of an enterprise, and are most useful when prepared regularly and used to assist with budgeting, cash flows, and projections. They’re no help if they’re filed away or deleted and never looked at.
The more regularly a business owner generates and analyses their financial statements, the better prepared they are to continue operating. And not just continue – but grow and thrive.
The benefits include:
- Identifying problem areas before they negatively impact your business;
- Your business can become more resilient to changes outside of your control (such as changes in the market, global pandemics, natural disasters;
- You can make better informed business decisions based on accurate data;
- Show opportunities for growth that you hadn’t considered;
- Helps identify and set KPIs for the business as a whole and for individual team members;
- Assist with Business Continuity Planning, Succession Planning and Business Valuation.
What financial reports should you look at?
Profit & Loss Statement
- The Profit & Loss is a summary of all of the revenues generated and expenses incurred during the period cover by the statement. At the simplest level, profit is revenue minus expenses.
- The aim of the Profit & Loss is to match the review of the business with the expenses associated with earning that revenue for the relevant period of time.
- The purpose of determining the annual profit or loss is so that the owners of the enterprise can evaluate and determine whether their investment has been beneficial during the reporting period.
- The Balance Sheet monitors the assets, liabilities and equity of an enterprise.
- Balance sheets for ongoing enterprises are produced at least once a year. The balance sheet is a snapshot of the assets and liabilities existing at the balance date.
Cash Flow Statement
- A business needs cash flow to survive.
- The cash flow statement shows the cash coming in and the cash going out.
- Cash flow statements provide very valuable information, they take time to prepare because they must be produced after the Balance Sheet and Profit & Loss, but they are one of the most valuable business tools. In order to produce a useful cash flow forecast financial statements need to be prepared on a timely basis.
- A budget is always a financial plan of estimated performance.
- For a budget to be a useful tool for managing a business it is important that those involved in the implementation of the budget also have input into its preparation.
- Operational budgets deal with activities which have a direct bearing on the Profit & Loss. In a business any number of budgets can be created for different areas and all areas are encompassed in the Master Budget which is the overall picture and shows the relationship between all facets.
What areas should you analyse?
- Sales – compared to budget, how did you do?
- Pricing – what effect would an increase in your prices have on your revenue?
- Customers – how many customers did you have?
- Value of transactions – what was the average value of transactions?
- Cost of goods sold – have costs to you gone up without you increasing your prices?
- Expenses – did you incur any unusual expenses? Have expenses increased in some areas that were unexpected?
- Profitability – how profitable is the business?
- Cash flow – how has cash flow been impacted?
How do I track and analyse all this data?
Use technology to your advantage!
It’s 2022 and businesses should not be relying on paper financial reports. It’s messy, slow, bad for the environment, hard to measure accuracy and consistently, easily lost or damaged, and a nightmare when working from home!
There are many online tools that you can use that are cost effective and automate many manual processes, which saves time and money and allows you to focus on business development, marketing initiatives, and (most importantly) your family and yourself.
What tools can I use?
- Cash Flow Story – this one is a favourite at Aintree Group. It presents your financial data in a digestible way and allows you to track the impact of different changes you could make (e.g. more customers, higher sale price).
- Vend (Point of Sale and Inventory Management) and Xero for seamless recording of sale through to bank reconciliation and GST reporting.
- Deputy (Rostering and Time Tracking)
- Chaser for automatic debtor debt collection and payment reminders
Use your accountant to your advantage!
Even with technology on your side, you don’t necessarily have the time to generate all these reports and create ratios and comparisons, or the financial expertise to fully analyse the data. This is where a good business accountant can help.
Your accountant is possibly one of the most under-utilised professionals in your life. If you own, run or are involved in a business, then you should think of the businesses accountant as more than just a tax advisor.
If all your accountant seems to be able to do is report history (and not on a very timely basis at that), then perhaps it is time to change that relationship.
Demand timely attention, and use your accountant as a business advisor. The best business accountants provided monthly or quarterly financial reporting services, where you can review the performance of the business, the cash flow reports and identify areas that need attention.
Looking for a good business accountant who offers financial reporting services? Get in touch!