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I’ve worked with over 100 companies in the last 20 years—as a consultant, a volunteer mentor, and an entrepreneur myself.
When you talk with that many business owners, you notice patterns: who’s confident and who’s uncertain; what separates the successful from the struggling.
One of the biggest differentiators I’ve consistently found is that entrepreneurs who know their numbers are both more confident and likelier to succeed. Understanding your company’s financial picture isn’t just about creating an annual budget, although that’s extremely important. It’s about having the right data, reporting, and analysis—on a consistent monthly basis—to see your company’s finances from all angles.
But First . . . Your Data
The best reporting in the world is useless if the data underneath it isn’t solid. If your books are a mess—unreconciled accounts or improperly classified or missing transactions, you’ll never get a clear picture of your company’s financial health.
Our Finance Services team can support your bookkeeping function to ensure that you close your books—accurately—every single month. But there are a ton of options out there for bookkeeping services. We just care that you have a consistent, affordable solution that works for you.
Top 5 Finance Reports to Review Every Single Month
Profit and Loss Statement (P&L).
If a company is reviewing any reporting on a monthly basis, it’s usually the P&L. Easily downloaded from your accounting software, this report is good at providing an overview of your revenue and expenses from the past month. Whether you view on cash or accrual basis depends on your company, but pick one and stick with it consistently. The P&L is a great place to identify unnecessary expenses or unexpected revenue shortfalls.
Your forecast takes the information from your P&L and puts it in context with your projections for the entire year. This report is updated monthly with actuals and projected amounts. At the end of January, the report is the 1 + 11; at the end of February, it’s 2 + 12. Your budget is the basis for the forecast, but unlike the budget, future months aren’t fixed. You can, and should, evaluate the rest of the year and reforecast as needed every month.
Once your books are closed each month, your finance team should generate a report comparing the numbers from your annual budget, your most recent forecast, and your company’s actual performance (drawn from the P&L) that month. Not only will you see how performance may affect your company’s annual performance, but you’ll also identify patterns that will improve your predictive abilities over time.
Reported profit isn’t the same thing as cash in the bank. A lack of cash can choke your company, so be sure you’re also reviewing a cash flow report every single month. If cash is an issue, look for ways to improve cash flow, like tightening up your A/R process, turning projects around faster, or restructuring payment terms.
Rolling 12 Forecast.
The Rolling 12 Forecast is just what it sounds like: an extra forecasted month added on to your budget, so that you always have a baseline of your company’s finances one year into the future. The projections for the rolling 12 should come from your company’s 3-year budget (yes, you really do need one!), to ensure that you can always look at least one year ahead.
Monthly Finance Meeting
The way to leverage these reports is by holding a monthly finance meeting to review them. Reporting on its own doesn’t help your business: analyzing the reports, and then taking action accordingly, is what makes the difference.
This meeting should take place outside the weekly rhythm with your senior leadership team. The key players are the CEO, your head of finance, and the person who runs your company (Integrator, COO, Chief of Staff, etc.).
Your head of finance should walk you through each report, pointing out key insights and anomalies. From there, you can make strategic decisions rooted in data instead of guesswork.
If you don’t have a function for reporting and analyzing the financial data in your business, I challenge you to set one up in the next 90 days. The visibility, security, and predictability you’ll get is worth every penny you’ll spend on the resources to do it.
Our Finance Services team is designed to support small business owners with this exact function. If you’d like to learn more about our fractional CFO, Controller, and Bookkeeping services, just contact us for help. But whatever solution you decide to use, make it a priority to establish this critical function inside your business.