How often do you take a look at or review your business’ financial statements? If you save the review for the end of the year or figure that it is a task reserved for your accountant or virtual chief financial officer, it can be worth taking a second look. Reviewing your financial statements, such as your profit and loss statement, balance sheet and cash flow statement, every month is key for your business’ continued success and future growth. Here’s why it’s worth your while to examine your statements monthly.
It Allows You to See If Your Goals Are On-Track
How is your business doing when it comes to achieving its goals? Taking a look at your financial statements at the end of the month can let you see if you are bringing in enough revenue compared to your expenses and also if your revenue is increasing, decreasing or holding steady from month to month. It can also be worth your time to compare your statements from each month to the statements from the same month in the previous year. That way, you’re able to see if there are any patterns in your business and can help you predict how busy you’ll be going forward or whether some times of the year are likely to be slower than others.
Looking at your income and revenue each month can give you an idea of where you might need to make adjustments in order to reach a specific goal. For example, if your business hopes to increase revenue by 10 percent monthly compared to the previous year, but has only succeeded in increasing revenue by 5 percent, you can use the information provided by your financials to put together a plan to cut costs and increase revenue even more. Or, you might realize that the 5 percent increase is a more realistic amount for your business compared to 10 percent.
It Verifies Transactions
Part of reviewing your business’ financial statements each month should involve looking over your bank and credit card statements. You want to verify that the transactions that are posting to your accounts are transactions someone from your business actually initiated. Looking over your statements lets you detect any signs of fraud, such as unauthorized use of your company’s credit card. It also lets you detect any mistakes that your bank might have made, such processing a transaction twice or double crediting a deposit into your account.
It Alerts You to Issues Before They Become Major Concerns
Reviewing your financial statements each month can help you keep on top of accounts payables and accounts receivables. The longer an invoice goes unpaid by a customer, the less likely it is that they will ever pay the balance due. You don’t want to send out invoices then not keep track of who has paid and who hasn’t, only to realize at the end of the year that Customer A never paid their invoice. By that time, it will take a lot more effort on your part to get the customer to pay.
On the opposite side, you also want to review your statements monthly to make sure your business is paying what it owes. Forgetting to pay an invoice can mean that the unpaid company tacks on late or penalty fees, driving up the total amount you owe. Additionally, not keeping up with your accounts payable can have an adverse effect on your business’ credit.
It Helps You With Tax Planning
Finally, reviewing your financial statements each month can help your business with its tax preparation and planning. Business owners often think that tax planning is something they only need to think about at the end of the year or when they’re putting together their tax returns. In reality, it’s something to think about throughout the year. Looking over your statements each month can help you make changes to your business tax strategy so that you end up owing less to the state or federal government when it is time to file.
Need help reviewing your financial statements or want to learn more about what to pay attention to when looking over your business’ finances? The team at New Direction Capital can help. Contact us today to learn more about how our virtual CFO services can help your business stay on track and increase its profitable growth throughout the year.