Episode Transcript
Welcome to our continuing series on financial Snickens about reporting for entrepreneurs. And today I am going to be talking about the top five financial reports that I recommend for our business owners. And these are ones that I use myself and I am often looking at these and I'm going to tell you about frequency.
I'm going to tell you why they're important, why you should be viewing it, and how often you should view them. So the five reports are accounts receivable, profit and loss by income, profit and loss by your top 10 clients, budget versus actuals, and a comparison balance sheet. I also have an honorable mention, which I'm going to save till the end.
So we're going to start with the first one, accounts receivable. Why am I saying this one first? Well, if you do not track your accounts receivable, you will not be having cash flow. So this provides a snapshot of the money that's owed to you and it helps tracking any of the outstanding payments and it helps you to manage cash flow.
So why view this? It helps you monitor these payments that are owed to you. It also helps you identify who those late paying clients are and to assess the effectiveness of your policies. What are your due dates? Are they 15? Are they due upon receipt? What are they? And it also helps. To know that your business will have the necessary funds to operate smoothly.
So how often should you be reviewing this report? So depending on your business invoicing cycle is when is it determines how often you should be viewing this. So if you invoice on the 15th. Should you review it before the 15th? No. Review it after the 15th. Find out who's paying. I would actually highly suggest if you have a 15 day cycle that you review it on the 14th and see who's paid up until the 14th, knowing you're going to be sending out reminders the next day.
But this is subjective to when you do your invoicing and what the due dates of that invoicing is. The next one is profit and loss by percent of income. Now, if you know me and you've listened to anything I've said, you know, this is my favorite report. Why? Because it breaks down your expenses as a percentage of your sales.
So it tells you where your expenses are going. All that money that you're bringing in, it's telling you how it's being, how it's being used in your company. It also tells you how much of it you're keeping as profit. So, why view this? You are analyzing the expenses. And you're looking at which expenses are consuming the most significant portion of your income.
It helps you to identify areas where you can do cost reduction. And it helps you to make informed decisions. If you notice that your profitability is going down, is there some place where there is a significant portion of your expenses are going? So, these are things that you can look at and this is why you would view it.
Frequency, monthly or quarterly. I look at this monthly. I might look at it a few times during the month. It helps you to track trends and make timely adjustments to your business strategy. And it helps you to act quickly if profits are not where they're supposed to be. Third report is profit and loss by top 10 clients.
So this report highlights the contribution of individual clients to your overall revenue. It helps you to identify who your key clients are and what is the risk. If too much revenue is concentrated in a few accounts, this is really important. And why should you view it? Because it helps you to assess client relationships, identify upselling opportunities, and it mitigates the risk that comes with being dependent on a small number of clients.
It allows you to see it and identify. Is any one of these top 10 clients more than 20 percent of your income? If it is, it can help you to focus on other clients in that top 10 and grow those. What's the key number where you should be? Somewhere between 5 and 8 percent in general. Depends on your industry and what goals you're hoping to achieve.
But you don't ever want it to be more than 10, 10 to 15 percent because that can cause problems. We actually had a client that 50 percent of their revenue came from one client. Can you imagine the devastation if that one client left? You don't ever want to be in that position. So frequency, how often do you review this report?
We suggest quarterly. There are fluctuations that happen throughout the quarter that tend to even out. So this is something that over a quarter you should be able to see different trends based on what's happening with each client and it will help you to make decisions based on the numbers that you see over a quarter.
The fourth report, budget versus actuals. So, this report compares the budgeted or the planned amounts versus what is actually happening. And it provides insight into how well the business is adhering to the financial plan. So why do you view this report? It helps you to identify areas where the actual performance, the things that are happening day to day in the company.
And then you can delve into understanding what are the reasons behind this variation, and then you can adjust your strategies accordingly. So how often should you do this? Monthly reviews are common, so you can make timely adjustments and keep the business on track to meet your financial goals. The fifth report is the comparison balance sheet.
So why, you know, what's the importance of viewing this? The balance sheet provides a snapshot of your business's financial position at a specific point in time. It shows you your assets and liabilities and your equity. So why view it? It helps you to assess the overall financial health. It helps you to assess the overall financial health, liquidity, and solvency of your business.
And it also helps you to make informed decisions about your business. And it's really important that the frequency of looking at this, we look at it quarterly and we do a comparison of quarter by quarter. But it's important because this report is what lenders and investors want to look at in your business, and it helps you to understand any of the potential financial challenges you might be seeing.
So, one report that I didn't mention, but it does deserve an honorable mention, and that is accounts payable. Although it should be covered. In your budgeted versus actuals reports, because if something's happening there that is not expected, you would look at your accounts payable because the things that you're paying should have been planned payments, but you can always look at it on its own to make sure that payments are being made timely to your vendors and to, to see what expenses need to be paid.
That are coming up regularly. Reviewing all those reports is crucial for maintaining a healthy and sustainable business. You can review them frequently. And the frequency is dependent on what you decide and what your company needs to happen. And it can be adjusted based on your size, based on your goals, but consistent monitoring is what is going to help you make good decisions about your business.
Doing anything consistently, saving, exercising, eating well, looking at your financials are what is going to help you create a successful business. It will help you to address your challenges proactively and steer your business towards
success. If you want to talk about more reporting and what you should be looking at, head over to our website, firststepsfinancial.
com, and we can talk more about what reports you should be looking at on a regular basis. And I look forward to talking to you soon.
