There are several financial reports that can provide insight into the past, present, and future financial state of the business. As a business owner, having an annual report of key financial data is critical in effectively running the business, optimizing operational analytics, and helping guide business decisions.

Here are five of the most essential financial reports that every business owner should review on a regular basis to gain a better understanding of the company’s financial performance:

• Balance sheet
• Income statement
• Cash flow statement
• Accounts receivable aging report
• Budget vs. actual

Balance sheet

The balance sheet is a financial statement summarizing a company’s total assets (current, non-current, and intangible assets), liabilities (financial obligations), and shareholders’ equity (investments and retained earnings) at a specific point in time, usually at the end of an accounting period.

It provides a snapshot of a company’s financial position, including the economic resources it owns, owes, and the sources of financing for those resources.

The balance sheet can be used to identify trends and make more informed financial accounting decisions. It is also important to lenders, as they will use it to determine a company’s creditworthiness.

Income statement

The income statement summarizes the total revenues and expenses incurred by the business, showing the profitability (net income or net loss) over a specified period, usually a month, quarter, or year. It is sometimes called the profit and loss (P&L) statement, statement of operations, or statement of income.

The income statement is used by internal stakeholders (such as the management team and board of directors) as well as external stakeholders (such as investors and creditors) to evaluate profitability and help assess the level of risk for an investor or creditor.

Cash flow statement

The cash flow statement summarizes all cash inflows and outflows of a business over a period of time. This statement differs from the balance sheet and income statement because it only considers cash activity. It does not account for non-cash activity such as sales, purchases on credit, or depreciation.

The cash flow statement has three sections: operating, financing, and investing activities. It indicates which areas of the business are generating and using the most cash. One of the best uses of the cash flow statement is to estimate future cash flow, which will assist with budgeting and decision-making.

The standard financial statement package comprises the cash flow statement, balance sheet, and income statement. Your accounting team should prepare these financial statements on a monthly basis after the month-end close procedures. Together, these statements can be used to calculate and monitor key performance indicators over time.

Accounts receivable aging report

The accounts receivable (A/R) aging report categorizes outstanding accounts receivable into groups based on the invoice's due date, typically current, 1-30 days, 31-60 days, 61-90 days, and >90 days overdue.

A common source of cash flow problems, especially for small and mid-size businesses, is poorly managed accounts receivable. The more cash your business has tied up in receivables, the less cash you have to run your business. Reviewing the A/R aging report will help companies proactively manage the receivable collections process immediately upon invoicing and create more accountability for those responsible for collections.

The A/R aging report can be generated from most accounting systems and reviewed at any time. If collecting on accounts receivable is an issue for your business, a weekly review of this report may be necessary to assist in identifying past-due accounts. Once these accounts are identified, collection procedures can be initiated to improve business cash flows.

Budget vs. actual

As the name suggests, this report compares actual results, primarily from the income statement, against the budgeted amounts that were projected at the beginning of the period. This report allows you to assess how closely your company’s spending and revenue generation meet the financial forecasting projections included in the budget.

The budget vs. actual report can help identify areas that were over and under budget, indicating the ability to hire additional employees or bring attention to a gross profit margin that is not in line with financial reporting expectations.

The budget vs. actual report should be prepared on a monthly basis and reviewed with the financial statements to determine if any areas of the business are not meeting expectations and should be investigated further.

Our highly experienced advisors can complement your internal accounting team or act as your entire accounting department (CFO to staff accountant) on an ongoing basis. We will consistently provide you with timely and accurate financials and reports (like the ones mentioned above) on a monthly basis, as well as the actionable financial analysis you need to effectively run your company, analyze operations, and guide business decisions.

If your business needs additional accounting support, schedule a free consultation today.