If you don’t know it’s happening, how do you fix it?
Why are you running a business? The most common reason is that you need to keep the money coming in, so it follows your business needs to make a profit. To keep your income stable, the best way is to make sure you’re making enough profit to draw out the money you need.
How do you do this?
The best way is to have monthly accounts & some key numbers you can track during the month.
What do you need?
You need to know if you’re making a profit & how you’re manging your cash & assets. Having the 3 reports below will help you understand the trends, and will tell you about the financial health of your business.
Profit & Loss Account
It shows the total sales & details the business’ spending, to show whether the business has made a profit or a loss in the month.
Balance Sheet
A balance sheet is a snapshot of what your business owns and owes, detailing your assets, liabilities & equity at the end of each month. They are very helpful in identifying trends & making informed decisions.
Statement of Cash Flow
Cash flow refers to the money that comes in & goes out of your business. Cash flow is not the same as profit; it’s possible to be in profit but run out of cash, or vice versa. Cash flow statements help you to ensure that your business maintains a healthy bank balance.
Cash flow statements are split into three sections: operating, financing & investing. They help you understand which areas of the business use the most cash & which generate it. You could use it to help you to improve your cash flow & to manage it.
Key Performance Indicators (KPIs)
These are easy to calculate measurable values, that tell you how effectively your business is achieving its key business objectives & reaching targets. For example: target daily sales.
How Are Accounting Reports Prepared?
Accounting reports are created from the information in your accounts. Creating all of these reports each month correctly & picking out what is important can take up a lot of time. So, most businesses get an Accountant to do it for them, because they are trained to create reports swiftly & accurately.
Why Are Accounting Reports Important?
You need to know what’s happening to be able to able to do something about it. Having a plan including future projections (with scenario planning) & comparing it to what actually happens, will help you properly understand your business.
The suppliers who give you credit & your bank manager will also be very interested in your numbers, to assess how much of a risk you are. Also, you & HMRC will want to know if your tax is right.
Summary
Accounting reports are vital for your business’s ability to function efficiently day-to-day, for making informed choices & preparing for the future.
If you want to know it’s happening & how to fix it, why not book a meeting to see how we can help you?
