Businesses that track and manage their financials perform better.
That statement applies, of course, to major corporations. But it applies to small businesses and medium-sized enterprises as well. And thanks to modern technology, you don’t need a full-scale, in-house finance department to have robust monthly reporting and get a good handle on your business’s finances.
With the help of your CPA and some widely available software tools, any small business (including dentists, doctors, and construction companies) can benefit from a comprehensive monthly reporting package.
But if you’re just starting out, setting up your financial reports can be a little intimidating. Where should you start? What information do you need? And which reports can provide that information?
There are seven elements of robust monthly financial reports essential to providing the information necessary to steer your business:
- Cash Flow
- Accounts Receivable
- Budget Variance
- Cash On Hand (Runway)
- Key Sales Metrics
- Debt/Investor data
Let’s take a closer look!
Cash is the lifeblood of any business. Running low can spell bad news for you and your employees. A cash shortage can force you to take on debt with unfavorable terms and can even cause you to sell or shutter your business.
That’s why cash flow reporting is critical for helping you keep track of how much cash is flowing into and out of your business. A monthly overview helps you ensure your business maintains a healthy level of liquidity and allows you to react quickly to potentially undesirable situations.
Cash flow is affected by a few factors, but one of the most critical is how you manage your accounts receivable.
Because your accounts receivable (AR) is such a critical component of your cash flow, the health of your business depends on strictly controlling your AR.
Dedicate a section of your monthly reporting to showing an overview of your AR.
It can include:
- Average days receivable outstanding (how long on average it takes for your invoices to be paid)
- Amount due, by customer, for major customers
- Highlight customers with significant overdue balances or who don’t pay on time
Your business needs cash flowing in, and an accounts receivable report will help you stay alert to any potential issues before they become major crises.
Taking some time each year to create a budget for your company is a worthwhile exercise. It gives you a roadmap for the year, and can make it easier to follow how you’re progressing towards your annual goals.
Although going through the process of defining your targets and preparing a budget is helpful in itself, a big chunk of the value comes from being able to regularly compare actuals to your budget targets.
Are you on track to meet your goals?
Budget variance analysis is a critical aspect of any monthly reporting. It highlights major performance gaps, and can aid in pinpointing where you and your team need to put a little extra focus in the coming months.
Cash on Hand (Runway)
If your business experiences a crisis, or you’re a startup operating at a loss, how long can you survive without making major changes to your business structure? How long can you continue to operate without securing external investment?
Runway indicates how long your business can survive based on your current cash balances.
Monitoring runway and net burn rate (cash flow) each month will give you a good feel on whether your business is healthy or not. It also indicates how resistant your business is to major market fluctuations.
How much are you spending in salaries and personnel each month?
Payroll can be a touchy subject, one that people are typically hesitant to speak openly about. But apart from material cost, it’s likely one of your largest monthly expenses.
Including your payroll cost and some personnel metrics (headcount, total wages, revenue per person, etc) will give the topic additional visibility. And visibility helps you keep control over any major item.
Adding the ratios and metrics will help you clearly see the value generated by your staff, and if that value is in line with your objectives.
Key Sales Metrics
Your revenue (and in turn, cash) is generated through your sales. Keeping track of sales metrics is essential for keeping your fingers on the pulse of your business.
For the monthly reporting package, there are a few standard sales metrics to follow:
- Gross & Net Sales
- Budget vs. Actuals
But there are a few other metrics that can be extremely informative.
Depending on your business model, it might be helpful to look at monthly sales per customer, or your top customers. Or, for companies in the technology space, you may find that adding marketing and sales funnel metrics gives you necessary information about your customer pipeline.
- Number of new leads
- Total marketing Spend
- CAC (average customer acquisition cost)
- Churn rate (for recurring businesses)
These KPIs are valuable for helping you ensure the long term viability of your customer base.
Debt & Investor Data
A snapshot of your balance sheet, including debt (short and long-term) and investor / owner equity should also be included in a monthly financial report. A quick summary of the business’s overall debt – including to whom and how much – ensures you are regularly monitoring your fundamentals.
Get Expert Help for Your Monthly Financial Reports
Implementing monthly financial reporting will give you a regular snapshot of how your business is performing in areas critical to the health of your business.
But you don’t need to hire an in-house finance team to get professional monthly reports that add real value to your business.
We can help you ensure that you always have answers to the critical questions that each business owner faces:
- Is the business performing as it should?
- Are we hitting our goals?
- Do we have any major problem areas?
- What do we need to focus on bringing under control?
If you’re ready to start getting answers to those questions with the help of an experienced financial partner, let’s talk. Adian’s expert team can help you establish clarity on the financial health of your business.