Creating and analyzing financial reports may not be the thing you enjoy the most about owning a business. Even so, these tasks are essential if you hope to enjoy long-term business success. Not only do these reports need to be error-free and easy to understand, but you need to work with them regularly to meet the financial goals of your business.
Increase the Reliability of Your Financial Reports
A financial report is only useful when it’s accurate. That means you can’t ignore system notifications such as data problems or balance sheet not balanced. Depending on your accounting software, you may need to purge incorrect data from the file and rebuild it. Just make sure that you run a backup before you do this.
Look for missing entries such as interest calculated on a loan or depreciation of a business asset. These missing figures can throw off your entire system. One way to know that you have missing transactions is when negative balances appear. When you print a balance sheet, only depreciating assets, significant losses, or cash distributions should show a negative balance. You will need to correct the error for any other entry showing as negative.
Make Your Financial Reports User-Friendly
It won’t do your business much good if you’re the only one who understands its financial reports. The profit and loss of your business is the big picture take-away from your statements. They should also show how much it costs to create and sell your products. This should include cost to use machines, direct labor, and raw materials if you’re in manufacturing and cost of goods sold, shipping fees, and wholesale discounts and penalties at a minimum if you’re in retail.
The reason this is necessary is that it helps to determine the most effective pricing strategy. You could be losing money on one or more products otherwise. We recommend restructuring your financial reports to ensure that everyone who accesses them understands what they see. It’s essential for everyone viewing the report to know whether each segment is profitable and how much of the company’s income it generates. A segment can be whatever you determine it to be, including products, business unit, or geographical division. If you feel stuck on this step, an accountant or small business consultant can help you.
Become Disciplined About Updating Financial Reports
Your reports will never be accurate if you don’t follow a schedule to update them. This should include weekly reconciliation of bank accounts and monthly reconciliation of your company’s financial reports. If you don’t feel comfortable doing this yourself, you can outsource the task or hire someone to manage the books. Following a regular schedule is the best way to ensure that your report remains reliable and readable. Lastly, don’t forget to make regular cash flow projections and plan for financial emergencies. Please let us know if we can assist you in any way.
Doerhoff & Associates knows you can use all the help you can get to run your small business successfully, and we are here for you. We strive to provide what you really want and need – a unique and customized set of services to fill the gap and support you, the business owner.