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    3 (More) Financial Reports Every Business Owner Should Live By

    Posted by Sylvia Lagerquist, CPA

    3 (More) Financial Reports Every Business Owner Should Live By

    As a CEO, you need meaningful information and timely insights to help you make better business decisions. Is the company making money on one project, or losing money on another one? Are capital assets being utilized as fully as possible? How can we improve labor efficiency and enhance output?

    In order to know where your business stands, one essential key is to develop solid financial reports which can inform and sharpen your decisions. In a previous article, we described three essential financial reports every business owner should live by. These three core reports are:

    1. Balance Sheet
    2. Income Statement (P&L)
    3. Cash-Flow Statement

    Once you’ve mastered configuring and generating these reports reliably for your business, where do you go next? What additional information and insights should you be gaining every week, month and quarter as a business owner?

    Here are three additional financial reports that can help you effectively manage your business as you seek to achieve more revenues, stronger profitability and greater success:

    1. Check your aging.

    The Accounts Receivable (A/R) Aging Report is your first stop after mastering the fundamentals. The purpose of this report is to present outstanding accounts receivable, organized into segments based upon timeframe. Typically, this report will present:

    – Invoices outstanding but current
    – Invoices 1-30 days overdue
    – Invoices 31-60 days overdue
    – Invoices 61-90 days overdue
    – Invoices 91 or more days overdue

    For many companies, cash flow is a constant priority, and using this report to stay on top of who owes what, as well as to pursue appropriate collections, can be invaluable.

    2. Evaluate your backlog.

    You just received a major order for new products, but most of the products aren’t yet ready to ship from your factory…or your warehouse can only fulfill half of the order until more come from your manufacturing partner.

    The gap between business you have booked and products you have shipped (or for a service business, services you have sold and services you have delivered) is essential to track. You can’t bill or charge customers (in most cases) for products or services not yet delivered, so knowing when you anticipate delivering products or services on order — and tracking the size and depth of the gap between bookings and shipments (the open sales order gap) is essential.

    Just as the A/R aging report helps you collect payments from customers who owe you for products or services you’ve delivered, the backlog report will help you get more invoices out the door as you work to close the gap between what you’ve sold and what you’ve sent out the door.

    3. Compare your budget vs. actual.

    Your income statement can show you your actual financial results, but you now need to compare what happened in reality to what you had predicted in your forecast.

    Did revenues increase as expected? Are your sales personnel booking new orders to keep you moving at your forecasted growth rate? Have your expenses (for equipment, components, overhead, personnel and operations) stayed within your set boundaries, or exceeded them?

    Running a budget vs. actual report on a monthly basis will help you stay on top of these questions. Remember, you can easily achieve rapid revenue growth while at the same time experiencing a loss of profitability. This can ultimately lead to a cash flow crisis and, in some cases, to the demise of the company.

    In addition, the budget vs. actual report is essential in enabling you to better tailor new proposals or future product pricing and ordering to match trends the data can uncover.

    Depending on what financial systems and software your company relies on, you should be able to easily generate and manage using each of these reports on a regular basis. Incorporate them into your own review process, and into your management team meetings as well.

    To learn more about how you can customize financial reports to meet your management accounting needs or enhance your accounting software to make reporting easy and seamless for you and your leadership team, consult with a qualified CPA firm.

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