<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=349935452247528&amp;ev=PageView&amp;noscript=1">
Search
word-map-thumb

The Alternative Board Blog

Financial Reports Every Business Needs

Dec. 15, 2021 | Posted by The Alternative Board

For the smooth running of a small business, no paperwork may be more essential than financial reports. These documents inform business owners and CEOs about the success or lack of success in past business activities, while also painting a fairly reliable picture of what lies ahead.

Some business leaders believe that their finance staff is better equipped to handle these matters, so they opt for a hands-off approach. As Bob Haines, President at TAB Treasure Valley, Idaho, notes, this is not the best approach to managing financial resources within the organization.

Every business owner should know their numbers and stop spending money on expenses that don't bring a return on their investment,” Haines says. “Business owners should know and understand their Balance Sheet, Cash Flow Statement, and Profit and Loss Statement and be able to explain them to a 3rd party. The numbers tell a story, and often in that story are ways to save money or increase the ROI for the money that is spent.”

Here's a quick look at the three key finance reports and why they’re so important:

Income Statement (or Profit & Loss)

Income Statements are meant to be generated and reviewed on a monthly basis. The focus is on closely monitoring revenue that’s coming in and expenses that are going out.

The Income Statement looks at operating profit and profit in general.

Operating profit “records the profit made from the normal operating activities of the business—which will generally be from sales, minus the cost of goods, services and salaries,” notes Bytestart. For businesses mired in debt, a strong operating profit “might be a sign that the business will be able to work itself free of its debt, given time.” Operating profit that continuously wavers “may be a cause for concern.”

Profit itself incorporates non-operational income, such as interest income and earnings from investments or rentals.

Want additional insight? Best Ways to Secure Capital for Your Business now to learn more

DOWNLOAD

Cash Flow

Sales growth, gross profits, and operating profits are essential to every business, but the key insight owners are looking for is whether the company is generating positive cash flow.

“If your forecast shows that your company is not generating cash for the business, you know it's time to take action on your expenses, working capital, or capital expenditure budgets,” says Peter Santry, Owner at TAB Fairfield County, Connecticut.

A Cash Flow Statement usually consists of a record of:

  • Cash generated by daily business activities and corresponding expenditures such as salaries, interest payments, and operating costs
  • Funds gathered or spent through investment-related actions
  • Cash obtained via debt and debt repayments

Business leaders, generally optimistic by nature, can sometimes overestimate the amount of capital their business is likely to generate, thereby distorting their budgeting strategies. That’s why it’s essential to predict cash flow more accurately during different times of the year, so you’re not caught off-guard by future developments.

Balance Sheet

“The balance sheet is the cornerstone of a company’s financial statements,” notes Business News Daily, “providing a snapshot of its financial position at a certain point in time.”

A Balance Sheet outlines:

  • A company’s assets, including cash, accounts payable, inventory, intellectual property, etc.
  • A company’s liabilities, encompassing money owed to third parties (a bank, vendor, etc.) and, where applicable, deferred taxable liability (that is, taxes owed that have but still unpaid)
  • A company’s equity, funds that support the growth of the business, such as an owner’s investment, cash acquired from shares sold in the business, or financial reserves accumulated through outside investors

When a CEO or owner compares Balance Sheets from month-to-month and year-to-year, they can pinpoint trends that lead to more accurate financial planning.

Want to learn more about improving cash flow for your business? Sign up for our free TAB Boss Webinar, “How to Take Control of Your Cash Flow through Forecasting.”

 

Read our 19 Reasons You Need a Business Owner Advisory Board

DOWNLOAD

Written by The Alternative Board

Related posts

5 Ways to Boost Cash Flow in 2022
Jan. 5, 2022 | Posted by The Alternative Board
We’ve said it time and again—the state of a company’s cash flow is among the most significant metrics that every CEO or business owner should track. That’s because cash flow “is a key indicator of...
5 Cost-Cutting Tips for the New Year
Jan. 3, 2022 | Posted by The Alternative Board
In 2022, businesses will continue to adapt to changing conditions in the global marketplace. But as much as things change, certain operational fundamentals remain the same. Key among those...
Improving Your Accounts Receivables Process
Jan. 8, 2021 | Posted by The Alternative Board
Most businesses offer a solution to problems or otherwise fulfill a need experienced by their target audience. They can only go on doing this if—in exchange for delivering a valued good or...
Now is a Good Time to Cut Business Expenditures
Dec. 30, 2020 | Posted by The Alternative Board
In “normal” times, businesses often face the challenge of reducing expenditures while maintaining efficiency and productivity within their business operations. As we have noted before, “excessive...
The Pros and Cons of Invoice Financing
Dec. 23, 2020 | Posted by The Alternative Board
Businesses are often haunted by customers who consistently pay their invoices later than expected, or by those who don’t pay at all. A great deal of time, effort, and resources can be consumed by...
12 Ways to Make Budgeting And Forecasting Easier
Dec. 21, 2020 | Posted by The Alternative Board
Building and implementing a budgeting and forecasting process is critical to revenue growth. In today's fiercely disruptive and competitive world, the importance of such an approach cannot be...
How to Prepare Your Clients for a Price Increase
Sep. 3, 2020 | Posted by The Alternative Board
Every business must, at one point or another, share what’s viewed by customers as “unwelcome” news—the need for a price increase for products or services. Some businesses simply set the wheels in...
Five Tips to Effectively Scale Your Business' Growth
Jun. 27, 2019 | Posted by The Alternative Board
All businesses need to grow, but at what pace and how quickly should they scale that growth? These questions intrigue (and sometimes torment) business owners, because there’s no single “right” answer...
How to Effectively Manage Your Small Business' Cash Flow
Apr. 9, 2019 | Posted by Phil Spensieri
In the past 30 plus years I’ve spoken to many business owners who have encountered cash flow issues over the course of running their businesses. The proper management of your cash flow can help you...
Awesome Tips on How to Plan for Your Company’s Expansion
Mar. 5, 2019 | Posted by The Alternative Board
Successful business growth doesn’t happen accidentally. While there are times when rapid expansion occurs due to unforeseen factors such as large-scale market changes or shifts in demographics, for...