How Often Should You Review Your Financial Statements?
How often do you look at or examine your company’s financial statements? If you postpone the evaluation till the end of the year or believe it is the duty of your accountant or virtual chief financial officer, it may be worth a second look.
Reviewing your financial documents, like your profit and loss statement, balance sheet, also cash flow statement, every month is crucial for your company’s ongoing performance and future growth. Reading and comprehending a financial statement isn’t as easy as it seems. Learning the fundamentals helps small businesses gain insight into their growth and how to improve. These insights enable business owners to make strategic decisions to expand their offerings and achieve greater success.
Monthly reviews allow for a close study of revenue and expenses, indicating whether the business is on track or requires strategic adjustments. In contrast, a yearly review reveals patterns that can help predict future business success.
Benefits of Conducting Regular Financial Reviews
Identify and Correct Errors or Discrepancies:
Monthly financial statement reviews allow you to quickly identify problems, anomalies, and inconsistencies in your financial records. These may include incorrectly recorded transactions, wrong balances, or missing entries. By detecting and correcting such problems early on, you may assure the accuracy of your financial statements, avoid any financial misstatements, and protect the integrity of your financial data.
It Allows You to See If Your Goals Are On-Track:
How well does your company meet its objectives? Looking at your financial accounts at the end of the month will help you determine if you are generating enough money to cover your expenses and whether your revenue is increasing, dropping, or remaining constant month after month.
It’s also worth your time to compare your monthly statements to those from the prior year. This allows you to see if there are any patterns in your business and predict how busy you will be in the future, as well as whether certain times of the year will be slower than others.
Monitor Financial Performance and Trends:
Regular financial statement reviews show your company’s financial status every month. By comparing and analyzing data across time, you can spot trends, patterns, and changes in key financial measures. This knowledge enables you to make more educated decisions, discover areas for development, and take proactive steps to address possible economic difficulties or opportunities.
It Verifies Transactions
You should analyze your company’s financial accounts every month, including your bank and credit card transactions. You want to be sure that someone from your firm started the transactions posted to your accounts.
Reviewing your statements allows you to identify fraud symptoms, such as unauthorized usage of your company’s credit card. It also allows you to spot any errors your bank may have made, such as completing a transaction twice or double crediting your account balance.
It Warns You about Issues Before They Become Major Concerns
Reviewing your financial statements every month might help you stay on top of your accounts payable and receivable. The longer a consumer does not pay an invoice, the less likely they are to pay the remainder outstanding. You don’t want to send out bills and then lose track of who has and has yet to pay, only to discover that Customer A never paid their payment at the end of the year. By that point, it will require a lot more work on your behalf to encourage the buyer to pay.
Support Decision-Making and Planning:
Accurate and current financial information is critical for making the right informed business decisions and devising effective strategies. Monthly financial statement reviews provide the information required to examine your company’s financial health, profitability, and the feasibility of current projects or investments.
These assessments assist you in understanding your cash flow condition, managing spending, establishing realistic financial goals, and making informed decisions to promote your company’s success.
Financial Statements Used to Review Your Business’s Financial Condition
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Profit and Loss
This report compares revenue earned to all expenses incurred, displaying the resulting profit or loss for each month evaluated. This report allows business owners to measure how well their operations drive the business. If losses occur every month, it suggests that the sales or spending trajectory needs to be adjusted. Is your business successful, losing money, or breaking even?
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Balance Sheet
Far too few people examine the balance sheet despite it containing critical information for everyone. A company’s balance sheet reflects its financial health more accurately than its income statement. The revenue and expenses shown on an income statement are transient, but a company’s assets reflect its current situation.
The liabilities are all you owe. And equity is similar to property ownership: you look at what you owe and what’s left over, and that’s it. Accounting practices vary among companies. To limit risk, they use historical expenses rather than market value.
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Cash Flow Statement
A cash flow statement indicates how a company’s financial position has changed and helps with operational, finance, and investment choices. Depending on your cash condition, you may need to reduce spending or obtain additional working capital.
Do you need help evaluating your financial accounts or want to learn more about what to look for when reviewing your company’s finances? The Advats team can help. Contact us today to learn more about our services.
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