April 15th approaches, and business owners up and down the country start sweating.
But not you. Unlike your fellow entrepreneurs, you don’t leave your financial reporting to the last minute, only conducting one annual review.
Because you know it’s not just an end-of-year problem, and that reviewing your financial reports regularly is one of the keys to a successful business. But just how regular is regular?
Having the time and resources to evaluate your finances every single day would be fantastic but isn’t feasible. Once a year though is too infrequent. It doesn’t take advantage of the goldmine of information hidden in financial reports.
What exactly does financial reporting involve? What are the benefits of regularity? And how regularly can it actually be done?
What Does Financial Reporting Involve?
The three major components of a financial report are the:
- Income statement
- Balance sheet
- Cash flow statement
Some business owners also look at the statement of changes in equity when reviewing their accounts. When pieced together, these documents show how the business is doing financially.
How to Analyze Your Financial Reports
Financial reports can be analyzed in two ways.
The first is a horizontal and vertical analysis. Horizontal analysis looks at financial information over time, helping analyze its future trajectory. Vertical analysis compares each line item with another, showing them as a percentage.
The second method to explain a company’s financial situation is through ratios. Examples are liquidity ratios, profitability ratios, and debt ratios. These ratios can then be compared to those of a previous time period to monitor growth in each area.
Benefits of Regular Financial Analysis
Reviewing reports regularly helps business owners keep their fingers on the financial pulse of their company. Benefits include:
- Early detection of financial issues
- Better debt management
- Faster identification of trends
- Better tax planning
- Tracking finances and cash flow in real-time
- More informed decision making
- Tracking progress toward financial goals
How Often Should You Review Financial Reports?
Deciding on the regularity of financial reporting is a trade-off of the resources it takes and the advantages it buys. The answer will be different for each company, though a financial annual report is common.
At Sterling, we don’t believe that’s enough to truly reap the benefits. Considering the wealth of information that comes from reviewing financial reports, once a year is simply too infrequent.
Our packages offer either semi-annual, quarterly, or monthly financial reviews. All of our packages also provide monthly financial reports. These can be reviewed by business owners between discussions with their account managers.
Get Ahead With Your Finances Now
Regular financial reporting is a necessary temperature check on your business. But the work involved is too demanding for many business owners.
While financial reporting software is a common solution, contracting an accountant is a more worthwhile investment. Our accounting packages at Sterling cover everything from full-service accounting to tax preparation and CFO. Our team reviews your financial reports every month, then offers actionable guidance that software can’t.
Get in touch with our team to start building your custom accounting plan, and keep your financial report reviews regular.
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