Important Monthly Reports
Do you do your own books? Do you know how the business is doing? By pulling these 3 reports you will get the overall idea of how your business is doing. I’m going to tell you what reports to pull, what they mean, and why you should pull them.
Balance Sheet
The balance sheet shows a company’s financial position on a specified date. The basic formula for the balance sheet.
Assets = Liabilities + Equity (owners equity)
Assets- Are what the business owns, for example, your bank account (cash), Inventory, Account receivable etc.
Liabilities- Are what you owe, for example, Services you promise in the future, Credit cards, Loans, Accounts payable, etc.
Equity- is the money that is left after a business has paid off all the liabilities, for example, Owners equity ( money left in the business), Retained earnings (what is left after previous years) net Income ( money left after all expenses= ending balance of Income statement)
So what are you looking for when you are looking at a balance sheet? You really are looking at the liabilities and equity section because both of those will equal what you have in assets. The lower your liabilities are the lower your risk is. Especially if you have employees to pay. It’s a good practice to keep cash in your business. This will help with a couple of things, It will help with cash flow issues, and any emergencies that may come up in your business.
Income Statement
This report is also referred to as the profit loss statement. An income statement is a report that shows how much revenue a business has earned over a specified amount of time. This shows the profitability of the business.
Here is the formula
Net Income- Revenues minus Expenses
Gross Income- The amount you earned in a period before expenses are taken out.
Cost of Goods Sold- refers to the direct costs of producing the goods sold by a business, let’s say you are a photographer, editing software, lighting, memory cards, etc would be classified as cost of goods sold.
Expense- Costs incurred in business to generate income. Advertising, bookkeeping, office supplies.
Net Income- what is left over after your gross income minus your expenses. The next income will also show up in the equity section of the balance sheet.
Statement of Cash Flows
CASH IS KING! This one is not pulled by many bookkeepers but it is still an important report. This report shows business inflows and outflows of cash during a period of time. There really isn’t a formula for this report, the following are the main components of the statement of cash flow.
1 Cash from operating activities
2 Cash from investing activities
3 Cash from financing activities
Cash from operating activities- includes any sources of cash from business activities. This would include changes made in cash, accounts receivable, accounts payable any liability accounts.
Cash from investing activities- Disposal of assets and other investments not included in cash equivalents. This is usually associated with buying and selling property or Long-term Assets.
Cash from Financing activities- Activities that will alter the equity or borrowings in a business. This can be a line of credit, Loans, and anything that affects the equity of any ower’s contribution or distributions.
These 3 reports I pull for all my clients. I also go over what I see in the reports too to give my clients an idea of how the business is running. Most people believe have no idea what they are making and just go off the bank balance. Do you know what your revenue was last month? How much money did you take out of the business? Most importantly are you making a profit?