As a small business owner, what are the most important financial reports I need to use?

Keeping track of your finances when running your own business isn’t easy. If you’re a sole trader or your business only employs a few people, financial reporting and tracking aren’t high on your agenda. With a wealth of reporting standards and differing accounting methods to adopt, it can feel a little overwhelming on which reports to use.

In this blog, we discuss the most common financial reports small business owners can use to measure, track and report on the overall health and wealth of their business.

The first step, before you even consider which reports to adopt, is to develop some clear processes for managing, reporting and tracking your business expenses and invoices. Ensuring you have the right processes in place, will allow you to track your income and expenses more quickly and you will also be able to more easily verify the overall health of your business.

What are the most popular financial reports I should consider using for my small business?

Profit and Loss Statement

This report gives you a great overview of the financial health of your business. In effect, it tells you if your business is running at a profit or a loss. Without profit, the likelihood of your business folding is highly likely.

By understanding the overall health and wealth of your business, you can also define your operating budget i.e. how much you intend to spend on the business over any given time.

If you have a significant profit recorded in your business, then you are more likely to want to invest more in other tools and resources. If however, your business is not looking like it will generate much profit anytime soon, then you can reduce your operating budget accordingly.

This report is also super helpful when you are submitting the annual tax returns for the business.

Balance Sheet

Like a profit and loss statement, this is probably one of the most recognised financial reports for small businesses. The balance sheet offers you a really good picture of your business’ assets and liabilities. It effectively tells you what the business owns and owes at any given time.

If you’re looking to secure funding for your business through a business loan, a balance sheet comes in handy. By carefully monitoring your balance sheet, you’ll be looking to increase your assets and equity and reduce your liabilities (i.e. money you owe).

Cash Flow Statement

As the name suggests, this report is all about tracking the overall cash flow of your business. This report tracks where your money is coming from and going, so you can carefully monitor the overall state of your profits.

It summarises all cash inflows and cash outflows of a business over a certain period, providing details on where the money is spent and indicating if the business is generating enough cash or not to survive.

Cash flow is king. It doesn’t matter how big or small your business is if you don’t have sufficient cash in your bank account to pay for goods and services, or you’re not receiving payment for goods and services when they become due, your business may become insolvent. Be mindful of your payment terms and carefully monitor for late payees. Watching what funds are coming into your business against what you are spending, will ensure you have a better handle on the overall health of your business.

If you find your bank account balance getting low and you have expenses you need to pay for, it might be time to reconsider your payment terms. Opt for a shorter payment term to ensure you receive payment for your work more quickly. As a small business, there is nothing wrong with setting your payment terms at 15 days. Many clients and operators are used to this short payment term and should pay you on time.

By regularly reviewing your cash flow statement you will have a far better understanding of the overall health of your business and it can help you to plan for the future too with short-term and longer-term investments. If you identify that your cash position is poor, you can quickly pivot and pull back on any unnecessary expenses to maintain and hopefully improve your positioning.

Accounts Payable Ageing Report

When you work with multiple suppliers it’s important to keep track of what you owe them and make sure to pay them on time. Keep on the good side of your suppliers with this report and never miss paying an invoice.

The Accounts Payable Ageing Report tells you who you owe money to and how much you owe them. Use this report to quickly search up who you need to pay so you don’t miss an invoice deadline. Paying a supplier late can lead to additional charges such as late payment fees and could damage your relationship with them too.

Need to ask for a better price or a discount on your next purchase? Need them to deliver goods faster than their standard delivery terms? If you fall out with your suppliers they are far less likely to help you out when you need it most.

Accounts Receivable

Accounts Receivable lets you know who owes what to you and how much. This report monitors how quickly your clients are paying you and is vital in helping you achieve and maintain a healthy cash flow.

This report can highlight your best payers and also determine which of your clients are repeatedly missing their invoice deadlines. By tracking these clients you are able to commence conversations with them and also decide if you wish to continue offering them a service. After all, there is no point in your business dedicating time and resources to a client that does not pay you.



Vacancy: Chief Technology Officer & GenAI Strategist

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