financial reports

Financial Reports – The Key to Business Success

I love working with new business owners. People who have a dream and act decisively to make that dream a reality. All new entrepreneurs are risk-takers; they gambled with the relative comfort of being an employee to create their own successful business. How can you not LOVE that? ❤️ Financial reports can take a successful business and help them adjust their budget so they can increase their profits, cut expenses, and allow their business to grow without having to spend so much!

financial reports

Financial Reports Help You See How You’re Doing Financially

On many occasions, I’ve helped new entrepreneurs get their business affairs in order. Our initial conversation usually includes the normal details: the business started small, expanded, brought on a few employees, made arrangements with suppliers, etc. Then, after the requisite details are out of the way, they get to the real point of the phone call. “Am I making any money?”

It’s easy to get caught up in the day to day hustle of running a business, large or small. You’ve got to pursue new clients, hang on to existing clients, comply with Government regulations, pay taxes, the to-do list is never-ending! It’s easy to see why even experienced business owners will come to me and ask, “How am I doing financially?”

You’re in Business to Make Money!

It’s important to periodically set aside some time to look at your business’s big picture. I get great satisfaction from helping my clients improve areas of their business that could potentially sink the ship. Sure, you’re doing all of this to sell a product or provide a service, but you are also in business to make money! If you forget that simple fact, you won’t be in business for very long!

The Doctor Is In

In many ways, I’m like a business doctor. I can show a client where their business is sick, and where it’s healthy. But, just like a doctor, all I can do is make recommendations. The business owner must act! The action required depends on the business’s financial data. Your doctor doesn’t make recommendations without performing tests and analyzing the data. So, what financial reports are important?

Here are the reports I recommend my small business clients pay close attention to. 


  • Profit and Loss for the Month – This is a simple report containing the business’s income and expenses for the month. It takes very little time to read, and it gives the business owner SOME of what they need to know…how much profit they made for that given month.
  •  Profit and Loss Year-To-Date – Just like the monthly profit and loss statement, it’s very visual and easy to read. It tells the business owner how much profit they’ve made since the beginning of the fiscal year. This is a good product for trend analysis.
  •  Balance Sheet – A monthly report to show the business owner their bank balances, credit card balances, and their owner equity balance. Again, this sheet is quick, visual, and easy to follow.

A Moment In Time

The data on these financial reports generally isn’t a surprise to business owners. Usually, they have a sense of whether business has been good or bad. The surprise may be in how good or how bad the numbers appear. The Profit and Loss statement helps provide a measure of statistical clarity and begins to unravel the mystery of all the numbers. Where am I under/overspending? Do I need to improve sales? Analyzing them gives you the knowledge which will help you to make better business decisions.

The Balance Sheet is another useful product. On several occasions, I’ve had to remind clients that they’re getting close to maxing out their credit cards. They usually can’t believe they’re approaching their limit, so I tell them to go back and look at their monthly balance sheets. There it is in black and white…and increasing every month. Now I know they haven’t been reading my emails!

The Quarterly Snapshot

In addition to the monthly reports, I also recommend my clients pay attention to the following quarterly reports.


  • Profit and Loss for the Quarter – This indicates how much profit the business made in a three-month period. Again, this can be useful in trend analysis.
  • Profit and Loss Comparison Year-To-Date – This report compares the business’s financial statistics from the start of the year to the present time against the same data from the previous year. For example, January through June of 2020 compared to January through June of 2019. Is the business trending down? Why? Has income decreased, or have expenses increased? This can be an extremely useful tool.
  • Statement of Cash Flows – This statement is a great indicator of the health of a business; because it shows incoming and outgoing money in greater detail. Things like credit card payments, loan payments, and owner draws are not indicated on Profit and Loss Statements, but they are on Cash Flow Statements.

Digging a Little Deeper into Cash Flow

The difference between cash flow and profit can best be illustrated this way. If you bill your clients $40k during a given month, and it only takes $25k to produce your product, you’ve made a profit of $15k, and your Profit and Loss statement will look great.  But…if it takes you 60 days to collect the $40k you billed out, you’ve got quite a cash flow problem. 

Another reason to analyze your cash flow statement is to plan for anticipated expenses. If you bill your clients at the end of the month, how much money will you need to pay your employees a mid-month paycheck? Add to that a piece of equipment that needs to be replaced, and an opportunity to capitalize on a new marketing strategy. Do you have the cash on hand to do all these things, or do you need to prioritize? The answer won’t come from just the Profit and Loss Statement. Just as the name implies, the Cash Flow Statement will help you see the flow of cash in and out of the business for the specified period of time.

Which One of These Financial Reports is Most Important?

None of these financial statements are intended to be all-encompassing. There is no single tool that will quickly give a business owner an instant thumbs up or thumbs down. 👍🏻👎🏻

If I could design one of those, I’d be on the beach with a drink in my hand instead of at my computer with a keyboard and a mouse. 🍹

Using these reports together will provide insight into the health of a business and show you the bigger picture. In my experience, they keep an owner from getting financially blind-sided while they’re caught up in the daily grind of running a business.

Who Has the Time for This Stuff?

I cannot overstress the importance of making the time to go over your financial statements each month. Turn your phone off, close your office door, do whatever you have to do to get some time to truly focus on the data these statements provide. Together, they tell you where you came from, where you’re at, and where your business is going.   

If you don’t know how to interpret them, ask your bookkeeper or accountant to go over them with you. They are a great source to have in your back pocket! Your bookkeeper or accountant can be the objective third party here; they will help show the health of your business and can point out some issues you haven’t noticed or didn’t want to see. Remember: Knowledge is Power! Knowing the numbers can be the difference between a business surviving a pandemic or having to close its doors. Which side of the fence do you want to be on? 

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