5 Financial Reports You Should Track For Your Business

There are a number of financial reports that can give information on the business’s past, current, and future financial state. The top five financial reports that every business owner has to regularly and yearly review to better understand the business’s financial performance are listed below.

  • Balance Sheet. It provides a snapshot of a business’s financial position, including the economic resources the business owns or owes and the sources of financing for those resources.
  • Income Statement. It summarizes the total revenues and expenses incurred by the business, showing the profitability (net income or net loss) over a specified period of time, usually a month, quarter, or year.
  • Cash Flow Statement. It is presented in three sections: operating, financing, and investing activities, and it indicates which areas of the business are generating and using the most cash. One of the best uses for the Cash Flow Statement is to estimate future cash flow, which will assist with budgeting and decision-making.
  • Accounts Receivable Aging Report. It categorizes outstanding accounts receivable into groups based on the due date of the invoice, typically current, as well as 1-30, 31-60, 61-90, and >90 days overdue.
  • Budget vs. Actual. It can help identify areas that were over or under budget, indicating the ability to hire additional employees. 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.

We consistently provide 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 business, analyze operations, and guide business decisions. If your business needs support, contact us today to schedule a consultation.

Getting to Know Your Financial Statements

Getting to Know Your Financial Statements

Are you aware of the state of your small business’s current finances?

If you run a business, learning how to read financial documents accurately is key to financial health! You need to know exactly where your money is going to and coming from, giving you the knowledge to cut unnecessary costs and find new sources of revenue.

Of course, not everyone is a professional bookkeeper or accountant, so many people need financial information to be presented in a way that is accessible and easy to absorb.

Here are the different types of financial statements that you need to know about in the world of business:

Different Kinds of Financial Statements

Income Statement

Simply put, this statement shows the amount of revenue that a business is generating within a specified period. It could be monthly, quarterly, or annual. If you’re looking to see your profits and losses, then your income statement will be your first stop!

A few of the aspects of your income statement you want to explore are:

  • Your Gross Revenue/Gross Sale – The amount of money you’ve made in a set period.
  • Your Returns and Allowances – The money that you stand to lose because of sales and other discounts.
  • Your Net Revenue – How much money you have after subtracting your returns and allowances.
  • Your Operating Expenses – How much money you spent to keep your business running (rent, wages, supplies, etc.).
  • Your Cost of Goods Sold – How much you spend to purchase your inventory.
  • Your Income Tax – How much you must pay in taxes to the government.

This is just a selection of the points you can explore in your Income Statement. If you’d like some assistance going through the entire document, we’d be happy to help!

Cash Flow Statement

Your Cash Flow Statement should tell you how much money is going in and out of your business over a period of time. It’s usually divided into three parts:

  • Investing Activities: Tracking the losses and gains of your business’s investments.
  • Financing Activities: Tracking the equity and debt of your business.
  • Operating Activities: Tracking the money and expenses covering your business’s operations.

Balance Sheet

Your Balance Sheet is an overview of everything your business holds, including your liabilities, assets, and equity. Your total assets should equal your liabilities and equity to ensure your financial health.

  • Liabilities: Debts that your company took out to pay for your expenses. These can be long-term (mortgages, business loans) and short-term (operating expenses, payroll).
  • Assets: Items of value that are owned by your business. These can be long-term (equipment, property, investments) and short-term (cash, inventory, securities).
  • Equity: This is the amount of money that currently belongs to you/your shareholders as the owners of your company.

How Quickbooks Online Can Help

The secret of generating accurate and concise financial statements for yourself and your business is to have all of your financial information kept in a single, safe place. If you need to pull data from several different sources, getting a complete picture of your financial health will be a huge headache.

However, everything you need is right there when you use an accounting program like QuickBooks Online! Once you’ve set it up for your business, it keeps track of everything, including your income, cash flow, costs, all in and outgoing invoices, and much more.

The main thing that keeps small business owners from using QuickBooks Online is a fear of a steep learning curve. Surely a comprehensive piece of accounting software is only meant for professionals, right? Not at all!

The beauty of QBO is that anyone can use it, no matter their level of financial literacy. In fact, by learning how to use this software, you’ll be teaching yourself how to better understand financial statements as you go, putting yourself in a much better position to run your business.

In addition, as QBO tracks all of your financial info in real-time, you can check in on your financial health whenever you want. This feature makes QBO an incredible resource for those looking to automate their financial reporting!

If you’ve never used QuickBooks Online before, we at The Number Works would be happy to help train you to use it. We’ve worked with many individuals and businesses across Ontario to teach them to use QBO to keep track of their financial health. So, if you’re interested in setting yourself up for financial success in 2022, don’t hesitate to get in touch with us today!

Make Better Financial Decisions By Better Understanding Your Income Statement

Make Better Financial Decisions By Better Understanding Your Income Statement

How often do you check your business’ income statement?

When you run a small business, information is your best friend. The more information that you have at your fingertips, the better the decisions you can make for your future. Being able to review your numbers and pull out key data at a moment’s notice is essential when you’re a small business owner.

One of the best ways to measure the health of your company is to check your income statements periodically. This is one of your company’s primary financial reports, sometimes referred to as the Profit & Loss Statement. This document is generated monthly, quarterly, or annually to provide an “in progress” snapshot of the current performance of your business.

What Is Its Main Use?

The primary use of the income statement is right there in the name. It’s a document that you can use to measure whether or not you’re bringing in money. “Bringing in money” doesn’t necessarily mean that you are saving money in the bank, however; to do that, you need to check your Cash Flow Statement.

The information contained in your income statement describes your net profit. In other words, your revenue minus your expenses will equal your net income.

Let’s Look at Revenue

When you generate income through your business operations, that’s your revenue. You might have a number of different revenue sources, depending on your business, which should appear at the end of each section of your income statement. This division can help you analyze which of your departments is performing best and where you might want to put your resources in the future.

This kind of information can be very useful for streamlining operations as it can help you focus in on the most profitable aspects of your business.

Let’s Look at the Cost of Sold Goods

If you’re an inventory-based business (as opposed to service-oriented), then the Cost of Goods Sold (COGS) is the key to understanding your income statement. Your COGS is the cost of your inventory sold within a given time frame. For example, if you buy approximately $10,000 worth of inventory and only sell 20% of it, then your COGS will be equal to $2,000. The rest ($8,000) can only be expensed once sold. Otherwise, it will be considered an inventory asset of your business.

Before purchasing inventory, it’s important to know what you already have in stock. That’s where your balance sheet can come in handy.

Let’s Look at Gross Profit

Gross profit can be boiled down to a simple equation:

Revenue – COGS = Gross Profit

This is a subtotal within your income statement and represents the revenue that you can disperse on your other expenses after you purchase your inventory. When this is expressed as a percentage, it’s called a gross margin. It can come in handy when you want to make decisions regarding your business taking on more expenses. It’s expressed through this equation:

(Revenue – COGS) / Revenue = Gross Margin

The Gross Margin will, of course, be different for various industries. You should do some research (or ask an accountant) to determine if your Gross Margin is comparable to your competitors’ as a metric of the health of your business. If it’s too low, it means that you are spending too much on inventory, or your sales prices are too low. This could indicate that you should be looking for more competitive prices for inventory or that you should increase your sales price.

Let’s Look at Fixed Costs

Fixed costs are the expenses that are easy to predict. They occur monthly, regardless of your overall sales or other costs. They can include your monthly rent, hydro, water, business and inventory insurance, marketing, and employee salaries.

This is another place where you might want to look at industry benchmarks to determine if you are overspending. For example, if your rent accounts for more than 50% of your fixed costs every month, you are likely paying too much. It could save you money in the long run to start looking for another location for your business and/or try to re-negotiate with your landlord. You could also consider cutting down on the space used for your business and sublease the rest. Always be sure to calculate the percentage of each fixed costs against your overall revenue.

Let’s Look at Variable Costs

These are the costs that vary month to month, depending on your sales and other occasional expenses. For example, if you start to sell more of your products, then the cost of packaging is likely to go up.

Your variable costs will likely fluctuate, depending on whether you are experiencing an increase or decrease in your sales numbers. If you are experiencing a temporary downturn of 20% in sales, but your variable costs remain constant, then you might need to explore some ways to cut down on that overspending.

Variable costs can vary wildly depending on if you are in a slow or rush season. You should constantly be tracking these costs through these seasons to make sure that you are slowing your spending during the slow season to save yourself money.

Basically, your income statement all comes down to this: to figure out your bottom line, you need to subtract your expenses from your gross profit. If you discover that you’re in the black, that’s great news—it means your revenue exceeds your expenses! Yay, profit! If you’re in the red, that unfortunately means you’re going to have to figure out how to shuffle things around financially to get yourself in the black. This can happen periodically, depending on variable costs during slow and rush seasons, so you always need to be on top of your income statement.

If you’re having trouble figuring out the areas where you are overspending and underperforming, we can help. At The Number Works, we can give you a more complete understanding of your income statements and show you places where you might be able to streamline your business. So, feel free to contact us today! We can’t wait to help you better understand all of your financial statements!