To provide weekly accounting tips for entrepreneurs, Kahuna Accounting started the “Accounting Clarity for Entrepreneurs” series. Each week, we’ll feature a new how-to video and description based on the questions we get from the many entrepreneurs we work with. Here is the “Your Business Financial Reports: What to Look For” lesson.
See below for a full transcript of this tutorial along with large versions of the images used by Micky Deming in the video.
As we continue our series on Accounting Clarity for Entrepreneurs we are taking another step in understanding monthly financial reports.
Last week, we covered the income statement and what to look for.
The income statement is a view of financial activity over specified periods of time. This is helpful for looking at expenses and reviewing their ROI and also good for seeing times of growth and momentum.
Today, we are going to look at the Balance Sheet, which provides a different financial picture for the business.
The balance sheet is a view of the business as a whole. Let’s take a look:
With the balance sheet, we’re able to see the total Assets, Liabilities and Equity and ultimately where the business stands as a whole today.
When looking at this, you are doing a quick pulse check on the overall health of the business.
When you look at the balance sheet, a few things to look at are the cash on hand and the debt.
Has the debt gone up or down over the past few months?
Has the cash on hand gone up or down?
Is your cash in a healthy position to cover debt obligations and bills or do you have to go further into debt?
By reviewing these key numbers you get a true sense of how healthy the business is and what needs to happen going forward.
Aged Receivables
Next, you definitely want to look at the Aged Receivables.
This is where you’ll find a report of all the invoices you’ve created that haven’t been paid.
This can happen for a number of reasons. The client can forget. Their credit card could have failed. You may have created the invoice, but never sent it out.
Whatever the reason, this is cash in your business that you are not receiving and it’s very important.
Pull this report every month and find out who owes you, how much they how you, and how long it’s been.
You will want to follow up with these people and collect the money you are owed sooner than later, because the longer it goes, the more difficult the conversation.
Knowing the importance of cash flow, this is a critical place where entrepreneurs can usually boost their cash flow in a simple way.
Aged Payables
Similarly, this report provides a glimpse of payments that are due for the business. As you review this, just take a look and make sure you are on track to pay on time and have a system in place for making payments efficiently.
If you are falling behind on payments, take a critical look and find out why.
Is it because of cash flow challenges?
Is it because of poor systems?
Your Business Pulse Check
Take time every month to take the pulse of your business. As entrepreneurs, we are so close to our business day-to-day that it’s hard to step back and see the big picture.
These reports are a great way to check the pulse. Here’s a quick recap of what to do:
- View the balance sheet and see where things stand at a big picture level
- View the aged receivables and make sure you are collecting what you are owed
- View your aged payables and make sure you are staying on top of vendor payments and bills.
If you want a system that will easily track all these numbers and present you with the reports, you should definitely consider working with the Kahuna Accounting team of experts. View www.kahunaaccounting.com/growth to learn more.
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