Are You Running Your Business on Gut Feel?
Many business owners work incredibly hard but make decisions based on what they think is happening rather than what the numbers actually show.
Checking your accounts once a year for tax purposes is a bit like checking the weather forecast after you’ve finished your sailing trip. Useful information arrives far too late to help.
A monthly review doesn’t need to take hours. Start with these three reports.
Profit & Loss Report
Your Profit & Loss report tells you whether your business is actually making money.
It shows:
- Income
- Costs
- Gross profit
- Overall profit
Questions to ask:
- Is turnover increasing or decreasing?
- Have costs increased unexpectedly?
- Are profit margins where you’d expect them to be?
The important thing isn’t just looking at the current month. Compare it with previous months and look for trends.
Aged Debtors Report
This is often the most neglected report and one of the most important.
You may have made sales and recorded profit, but if customers haven’t paid, the money isn’t available to spend.
An aged debtors report shows:
- Who owes you money
- How much they owe
- How long invoices have been outstanding
Many cash flow problems aren’t caused by lack of sales. They’re caused by slow payment.
A quick monthly review allows you to:
- Chase overdue invoices sooner
- Resolve disputes early
- Improve cash flow
- Reduce bad debts
The longer an invoice remains unpaid, the less likely it is to be collected.
Balance Sheet
The Balance Sheet often gets ignored because it looks more complicated, but it provides a snapshot of the health of the business.
It shows:
- What the business owns
- What the business owes
- Available cash
- Loans and liabilities
It can highlight issues that aren’t obvious from looking at profit alone.
A profitable business can still run into trouble if debts are increasing or cash reserves are falling.
Don’t Just Look at the Bank Balance
The bank balance tells you where you are today.
These three reports help tell you where you’re heading.
Together they provide a much clearer picture of:
- Profitability
- Cash flow
- Financial health
Spending 20 minutes each month reviewing them could save a lot of stress later.
Final Thought
As a sailor, I know that a quick check before setting off can prevent a lot of problems later. The same applies to your business finances.
You don’t need dozens of reports or complicated dashboards. Start with these three and you’ll be ahead of most business owners.
Three essential reports that help business owners monitor profitability, cash flow and financial health.