In business, knowledge is power. You can't expect your business to succeed unless you know where it stands at all times, and there's no better way to do that than by generating monthly reports.
Monthly reports help you keep a close eye on your company's financial health to make better business decisions around purchases, inventory, investments, marketing, and market expansions.
You can even use monthly report templates (used by other businesses) to hit the road running. Whatever you do, you need to understand the three most important types of monthly business reports, which are:
1. Profit and loss (P&L) statements
A profit & loss statement (aka income statement) shows the amount of revenue generated, expenses incurred, and the resulting profit or loss for the specified period. That period can be a month, a quarter, or even a year.
P&L statements are used by internal stakeholders (e.g. management and the board of directors) and internal stakeholders (e.g. investors and creditors) to evaluate a business's profitability and to assess financial risk. To help you eliminate such a risk you will require expert auditing services to help monitor and keep control of your resources.
Generally, you want your revenue to exceed your losses, which means that you're taking in more money than you're letting go out. If you lose more than you make, it means your business is unprofitable and something needs to change.
2. Balance sheets
A balance sheet provides a financial snapshot of your business on a given date. It has two columns with all of the company's assets on the left side and all of its liabilities and owner's equity on the right side.
The point of a balance sheet is to compare your business's debts to its assets and thereby derive its debt ratio (total liabilities divided by total assets). The higher the debt ratio, the more leveraged the business is. The lower the debt ratio, the more stable and liquid it is. This is also important information for lenders to evaluate a business's creditworthiness.
In addition, balance sheets can help you identify trends over time and make better financial decisions going forward, such as when to make an expensive purchase or when to go public.
3. Cash flow statements
Lastly, cash flow statements report on a business's cash activity. In other words, it tracks all the money going in and out of your business over a period of time (while disregarding non-cash activity like credit or depreciation).
If your business has more cash coming in than going out, that's a sign of a healthy business. The reverse is also true: If you have more cash going out than coming in, your business will eventually fail. So if your cash flow is low, you may choose to cut expenses or get temporary financing.
A cash flow statement also helps you estimate future cash flow. By knowing how much cash you have coming in from month to month, you can better plan for purchases, investments, and market expansions.
Adding it all up
Running a business isn't easy. But with the right monthly reports, you can be more confident about how to run it.
Together, P&L statements, balance sheets, and cash flow statements give you all the information you need to set your business on the right path.
Other monthly reports you may consider adding to the three listed above include accounts payable and accounts receivable reports, customer loyalty reports, and marketing engagement reports.
The key is to gather as much monthly data as possible. Then you'll be in a better position to make the best decisions for your business.
