It is important to maintain business records for tax purposes but there are other benefits from small business accounting that you can use to grow, improve, and expand your business. The following are the 5 most important accounting reports for your business that you should know about.
1.Profit and loss statement/income statement
For any business, this is the most important report because it tells you about the financial status of your business. In order to understand if you are making money or loosing money and why, prepare this statement consistently. This gives details on your business’ ability to create profit. It is also a good idea to look at trends. Comparing results to the same period in the prior year and comparing the most recent month with the last few months. This measures expenses and revenues for a certain period. But most importantly, it will help you focus on the most profitable parts of the business.
This gives you a snapshot of what the business has and owes at any given time. It is like a blueprint of what a business looks like on any particular day. For small businesses, assets typically include things like bank accounts, accounts receivables, and possibly an investment account. It may also include assets like property, computers, equipment, and other sale able physical and intangible property. Liabilities generally included things like credit cards, business loans, and anything else your business owes. The balance comes from the sum of all the assets being equal to the sum of the liabilities plus the shareholder’s equity.
When examining the balance sheet, also look at the short-term assets versus short-term liabilities. It is also provides warning signals about critical issues so that they can be solved before they adversely affects the business. Continuously updating your balance sheet is like growing your business. Analyzing a balance sheet is like looking at opportunities as they come along.
3.Accounts Receivable Aging
Reviewing your accounts receivable aging report more often can help you ensure that your customers and clients are paying you. You will be able to see how much is due from each of them. Look out for customers who are perpetually late, usually pay on time, and recently started paying late and growing late balances from any customers.
Part of collections is choosing the right clients to work with. Use your collections system to determine how you’ll contact all customers with bills 30 days or more overdue. This can improve payments and have more cash in your business.
4.Revenue by Customer
This report tells you how much you made from each customer over a period of time. However, beware of putting too much faith in any one income source. If too much revenue comes from one source, that is called “Revenue Concentration Risk”. Over-dependence on too few customers can lower the value of your business.
5.Accounts payable aging
This report tells you who you owe and how much. You could be missing out on early payment discounts or could be incurring financing fees. As long as your books are updated, you can easily look and find who you need to pay so don’t miss the due dates.
Review your aging reports monthly to identify any specific items that need action and to track the progress of any strategic adjustments you make.