3 Essential Financial Reports for Your Small Business Bookkeeping
When was the last time that you took a good look at your business’s financial reports? If you’re not sure, you could be missing out on an opportunity to gain powerful insight into how your business is doing.
Keeping a regular eye on your books can help you make informed decisions about how to grow your business, or even avoid potential problems on the horizon. Let’s explore some of the key or essential financial reports you should review.
Burn Rate Report
For startup companies, the burn rate report is critical. A burn rate report is a measure of the rate at which a business is spending money versus its cash flow or cash availability. What makes this such an important financial report is that it allows you to confidently plan whether you’re starting a new business or launching a new product within an established company.
Most startups spend their first few months or years operating on raised capital, rather than on revenue. A burn report allows you to see what you’re spending on a monthly or weekly basis so you can project future spending and plan for the future. With a burn rate report, it’s easier to estimate how long the runway is before it’s necessary to start bringing in positive income or raise more funding.
A burn rate report isn’t just important for startups. For a business in a growth phase, a burn rate can help you manage an annual departmental budget, or manage spending and debt levels while ramping up the launch of a new product or marketing initiative.
Profit and Loss Report
The profit and loss report is a fairly standard report for most businesses — and is a necessity when it comes time to prepare the business tax return. However, not enough companies take advantage of their profit-and-loss statements on a more regular basis.
A profit and loss report is a record of all the revenue and expense transactions for a given time period. (It might also be referred to as an income statement or statement of operations.) You may run a profit and loss report for a single month, a quarter, a year, or some other range of time.
Keeping an eye on your profit and loss report can help you identify trends and make decisions about adjusting expenses, increasing revenue, offering incentives, marketing spending, and more. For example, you may realize that the demand for your product or service has risen steadily over the last consecutive quarters, indicating that it might be time to raise your prices. A steady decline may indicate that it’s time to reevaluate the market and increase your advertising budget .
(Note: A good accounting firm can not only help spot these trends, but advise you on what they mean for your business.)
Productivity reports are often overlooked, but they can be a powerful tool to help your business run efficiently and utilize your employees effectively. A productivity report measures an employee’s hourly rate compared to the employee’s production.
At a healthy company, employees should be responsible for bringing in 3x over the amount of their salary in business. For example, if you’re paying an employee $20/hour for 8 hours, that person should be bringing in $640/day in order to support growth.
How you measure productivity for each employee will depend on their role — do they charge billable hours, or work in a support capacity? Work with your accounting advisor to come up with a metric that works for you.
Using these three critical financial reports
These three financial reports can help you keep your finger on the pulse of your business and drive growth if you take the time to review them regularly. Set aside time each month or quarter to review these three financial reports on your own or with your accounting advisor to see how you can improve the financial health of your business. Otherwise your business may struggle and you may feel the consequences.