Without a doubt, knowing what is going on in your business is of utmost importance to you. To get a comprehensive idea of how your business is performing, we recommend reviewing four reports on a regular basis – the Balance Sheet, the Income Statement, the Accounts Receivable Aging, and the Accounts Payable Aging reports. Let’s look at each of these reports in more detail.
The Balance Sheet provides a snapshot of where your business stands as of a particular date. It is compiled of three sections: Assets, Liabilities, and Equity. For an in-depth look at these sections please see our blog here.
The Balance Sheet can reveal a great deal about your business. Why is your bank balance low even though you’re making a profit? Are you accumulating or paying down debt? The Balance Sheet holds many answers.
Income Statement/Profit & Loss
Many business owners gravitate to the Income Statement (also known as the Profit & Loss or P&L) when they wonder how their business is doing and with good reason. The Income Statement is essential for knowing how your business has performed for a specific period of time. For a more extensive discussion of the various parts of the Income Statement, please view our blog here.
Is your business outperforming last year? Have you made a profit? How much should you pay yourself? Regularly reviewing the Income Statement can help unlock the answers to these and other questions and can help you to understand the story of what is going on in your business.
Accounts Receivable Aging
The Accounts Receivable Aging shows you the invoices that you have issued that have not been paid yet. Are your customers paying you in a timely manner? Has some income not been collected? Should you reach out to a customer to remind them of what they owe? Do any adjustments need to be made to write off income that will not be collected? Reviewing this report can help you to answer these questions and help you to resolve many issues.
Accounts Payable Aging
The Accounts Payable Aging is the other side of the coin. Are there any bills that you have neglected to pay? How much do you owe to vendors? How much of what you have in the bank should you hold onto to pay bills? A quick look at this report can help you to make informed decisions.
We recommend your reviewing all of the above-mentioned reports on a regular basis. Additionally, we recommend your reviewing these reports with your bookkeeper or accountant throughout the year. We meet with our ongoing clients throughout the year and reviewing these four reports is always part of our conversations. We want to make sure that our clients understand the story that their numbers is trying to tell them. We also want to make sure that the story is true and reviewing these reports helps us to uncover any areas that may need further attention so that the story being told is an accurate one.