You’re finally using a cloud-based bookkeeping software to keep track of your money. While it’s added a lot of ease to your system, it might also be confusing to figure out what you need to pay attention to within the software.
And more importantly, what can you use to help you make financial decisions that help instead of hurt your business?
There are three reports that I think every smart entrepreneur needs to read on a monthly basis.
If you’re allergic to numbers, don’t worry! I’ll make sure you understand what’s most important on each of these reports so you’re only focusing on what matters.
3 Financial Reports to Read Monthly
1) Income Report (Profit and Loss)
Basically, this report gives you an overview of how profitable your business is based on what you’ve earned and what you’ve spent. It represents a period of time, unlike a balance sheet, which shows a specific point in time.
The lines you’ll see on an income report in WaveApps, for example, are:
- Revenue – How much money came into your business and from what sources
- Cost of Goods Sold – If you manufacture products, this could be manufacturing costs and labor. If you’re an online business, this is usually merchant fees.
- Gross Profit (aka Margin) – This is what’s left over after your the cost of your goods sold.
- Operating Expenses – This is all of your other expenses, like admin, software, travel, etc.
- Net Profit – How much your business made after expenses
2) Sales tax report
First, in Canada, this is important for businesses that make over $30,000 in a single quarter or within a year, whichever comes first.
Second, sales tax shouldn’t be confused with income tax. It’s like how the tax is included in the price when you buy gas.
The point, though, is that as a small business owner, you are now responsible to give back, or remit, the tax charged on your sales to the government.
This report helps you understand what you owe.
3) Balance Sheet (aka Statement of Financial Position)
This statement answers these two questions:
- How much does my company OWN?
- How much does my company OWE?
In short, it gives you a more detailed view into how your business is doing financially at one point in time. It’s typically reviewed at the end of a month, quarter, or year. Or all three. 🙂
On the report, you’ll see:
- Assets (aka debits) – Value that your company owns, e.g. cash, inventory, etc.
- Liabilities (aka credits) – What your company owes to others, e.g. mortgage, credit card debt, payment for assets
- Shareholder equity – Net worth of your company, which is what’s left over after all your debts have been paid
Bonus: Trial Balance Report
This is a bonus since it’s mostly used by bookkeepers and accountants. A trial balance statement gives the current account balance in your bookkeeping, which is used for creating financial reports at the end of the year.
Before we had computers, you’d have to create this first before checking any other reports.
Now, however, it’s primarily used for double checking if your computer program has calculated everything properly.
Its purpose? It makes it easy to see all of your account balances for a specific date. It also helps when switching from one accounting program to another because when starting a new program, you need to enter all the correct balances of each account on the date you switch over.
Your financial reports are only as accurate as your books are organized, so if you’re behind on inputting data or categorizing transactions, your numbers won’t be telling you the truth. If you need help getting your books in order, especially before the busy tax season arrives, click here to get in touch with me. 🙂
Have a question? Leave it in the comments below!