As a business owner, it’s always been helpful to have an understanding of accounting. And in challenging economic times, it’s even more important to have a good grasp on your finances.

To track, monitor and drive your financial performance, it’s increasingly important to have a handle on your key financial reports and metrics.

Getting to grips with your financial reports

To truly be in control of this cash, it’s vital that you can dip into your accounts, financial reports and dashboards and “see the genuine story” behind your financial position.

So, what are the key reports to focus on? Let’s take a look:

Budget 

Your budget is the financial plan that's tied in with your strategic plan. In essence, the budget is your approximation of 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 (historic numbers) against, allowing you to see the variances, gaps and missed targets over a given period.

Cashflow Statement

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 this ongoing process, allowing you to aim for a “positive cashflow position” where inflows outweigh outflows. In this ideal positive scenario, you have enough liquid cash in the business to cover your costs, fund your operations and generate a profit.

Cashflow Forecast

Forecasting allows you to take your historic cash numbers and project them forward in time. As such, you can see where the cashflow holes may appear weeks, or even months, in advance – and that gives you time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices (aged debt) or going to lenders for additional funding.

Balance Sheet

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 and Loss

Your profit and loss report (P and L) Your P & L gives you an overview of the company’s revenues, costs and expenses over a given historic 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 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 us 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 get your company positioned for success.