Written by Sharon Sacks, CPA & Jane Cornett, MBA
When it comes to reviewing your business’ monthly financial reports, it can feel overwhelming. Some business owners know more about running their business than about what the financial statements mean. In this article, we highlight four areas you should focus on, and what questions to ask, when reviewing monthly financial reports.
- TIMING
- Is the information as current and as complete as possible? What do you look at to make sure nothing is missing?
- Have expectations among staff been made clear about the cutoff at month end?
- INCOME STATEMENT
- Is revenue at the expected levels (budget)? If not, what are the reasons? (e.g., lost customers, delayed projects, material shortages, etc.)
- Is the gross margin percentage as expected? If not, what are the reasons? (e.g., unexpected purchasing costs, higher than average freight costs to meet deliveries, price increases from vendors, higher # of hours needed to complete work vs. contract, etc.)
- Are managers responsible and accountable for their operating budgets? Are they managing their T&E costs, office supplies, outside consulting costs, etc.?
- How do the expenses as percentages of income compare with the expectations (budget or last year)?
- How do the expenses as percentages of income compare with industry benchmarks?
- BALANCE SHEET
- Accounts Receivable: Is there a significant percentage of past due accounts? This can have a huge impact on cash flow. What collection efforts need to be made going forward?
- Inventory Levels (if applicable): Is inventory growing faster than revenue? Are the inventory turns decreasing? Is obsolescence being evaluated on a periodic basis? Is the level of inventory a drain on your LOC and could you reduce your line by managing inventory levels?
- Are bank accounts, credit cards, and loans reconciled? Have the reconciliation reports and statements been reviewed? Are cash requirements being forecasted and updated on an ongoing basis?
- Liabilities: Have all your accounts payable or other liabilities been booked and look in line with your expectations? Do the balances on your debt match the loan statements?
- CASH FLOWS
- How are you managing cash? Do you have too much that should be invested? Do you have too little and need to adjust spending or increase financing? Are you utilizing all the tools your bank offers to manage your cash?
- What long-term decisions do you need to make, and does your cash flow support those decisions? What options do you have if your cash flow doesn’t support your needs?
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