Importance of Accurate Financial Reports
As a bookkeeper, keeping your client’s books current and accurate should be priority number one. This rule is equally important for any business owner doing their books.
All of us have that little voice that encourages procrastination. That darn “I’ll get to it soon, no big deal” voice. The “Oh, it’s okay if I’m a little behind, I can catch up later” voice. Worse still, the extra frightening “I’ll get caught up in December” voice.
Sound familiar? If not, I applaud you! Keep up the great work! If yes, stay put, and we’ll talk about how not keeping your books current and accurate impacts your financial reports, and by default the ability to run your business efficiently.
So, why is it essential to have consistent access to current financial reports? Let’s break it down, starting with the two key reports:
Your income statement, (otherwise known as your profit and loss statement or P&L) is the place where all your expenses and income are broken down into categories and then reflects your net profit. How does that help you as a business owner?.
How much income did you make from products sales?
How much income was from services? Do you break down your products sales into departments? Do you break out your services into type? It's important to keep accurate records to be able to see where you are making the most money. If you’re not receiving your income in a timely or accurate manner, you’re not able to make decisions about what you sell or provide that is the most profitable.
Do you know how much you're spending on utilities every month?
By keeping a close eye on how much you're spending, you'll be able to see if you're paying to much for a particular service. This quick picture from your income statement provides you with the ability to know what you spend monthly on phone, internet, cell phone, etc. All good business owners want to ensure their spending is reasonable; because no one wants to overpay for his or her utilities.
How much interest did you pay on liabilities each month?
Having your loan interest current on your Profit & Loss statement (P&L) will provide a quick glimpse into what the liabilities are costing your business each month. Tracking this interest is a great way to help decide which liabilities should be paid off sooner, or if any liabilities should be possibly be refinanced at a lower rate. You'll save yourself time by keeping up on this data in your P&L rather than having to research and calculate these number on your own.
How much have you paid in bank fees?
Having access to these totals helps you to understand several points. Do you overdraw your account regularly? Now you can see exactly how much it costs you. Are you overpaying for your bank services? You’ll know if you are and you can negotiate lower rates or consider changing institutions.
How much are you spending on advertising?
Many small business owners use multiple advertising tools that cost money. What is each one of those things costing you? You may be paying too much for a specific service and not even realizing how it adds up. Having an accessible insight into your advertising costs is a great way to plan for your next quarter or year.
Cost of Goods Sold is an area that you should always be looking at closely.
If you are spending more than you’re making, you'll have to adjust your spending and tweak your business plan to fix it. Researching cheaper suppliers, cheaper supplies, tweaking packaging, etc. are things that can be managed but watching your COGS in the P&L.
The Balance Sheet is where you see the health of your business at any point in time at a glance. Your full financial position is available to you here, only if it’s current and accurate. This document is only as useful as it is up-to-date.
All your liabilities are in your balance sheet: your loans, credit cards, and accounts payable are here. Checking your balance sheet is a great way to see quickly and easily what your debt load is. You can also see how much you have outstanding in Accounts Payable, which can assist you in determining cash flow, future credit possibilities, and business decisions.
You can also view all your assets in your balance statement. This includes cash on hand, accounts receivable and fixed assets. You can get a clear picture of what your available cash is, what money is due to come in, and what you own and its value.
Track the balance of your liabilities and assets to keep track of the overall health of your business. You can see if you’re spending more than you are bringing in and adjust your spending or credit utilization as needed. This report can also show you your ability to expand and utilize excess income to grow your business.
Now that we've covered the two most common (and arguably the most important) reports business owners should reference, let's highlight some of the lesser-known reports and their purposes:
Accounts Receivable Aging Report
This report tells you who owes you money, when it’s due, and if it’s overdue. It's a convenient alternative to see the list of your clients that are slow in paying you and potentially pursue collection if necessary. No one works or provides his or her product for free. So why should you? It’s important to stay on top of what you’re owed before it becomes a problem.
Account Payable Aging Report
This report is like the A/R, except it reflects what you owe your creditors. This information is essential when managing your cash flow and spending. Entering in all your bills due into QBO when they’re received gives you the ability to plan out whom you owe, how much, and when. Planning this way can ensure that monies are available when those invoices are due.
Quarterly Profit & Loss Summary
Some business owners review their businesses on a quarterly basis, rather than monthly, and this report automatically provides a quarterly summary of the P&L and compares it to previous quarters.
1099 Vendor Report
This report is used to determine which vendors you’ve done business with require a 1099 form to be sent. By keeping this vendor information in a report, you have all the information you need in one place, rather than pulling up each vendor one at a time and wasting time needlessly.
Balance Sheet Comparison Report
Seeing where your business is at compared to a previous year can be enlightening and allow you to make better-informed business decisions. Which is where the balance sheet comparison report comes in. However, if your books aren’t current, this report will not be accurate, and you may end up utilizing information for business decisions that is misleading.
QuickBooks Online has an extensive list of available reports that can assist you in running an efficient and streamlined business. I highly recommend exploring all the reports available to you to determine what works best for your operation, as each company is unique as is how the business owner prefers to operate.
The key is keeping your books up-to-date and accurate. Because if you do, you will be able to manage your business in the most efficient way possible. This pro-active management also makes you ready to utilize Halon Tax for your S-Corp, Partnership, and Personal tax returns and experience a new, painless way to do your taxes.