7 Financial Reports Business Owners Should Review Regularly

November 5, 2021 ROARK

When you measure results, better results tend to occur. When assessing all the reports from your team members, you notice the work they do, which puts pressure on them as an owner and executive. We will discuss seven financial reports that every business owner should review regularly.

Financial Report #1: Income Statement

The income statement, also known as the profit and loss statement, is critical. That helps you figure out how much money should be coming in and going out of your business.From a business perspective, your net income is what you make after all expenses have been paid for.

Identifying your revenue is crucial when analyzing an income statement. There are two ways to look at this. To begin with, start by comparing your current period to the past periods. So that’s very important. How is the income for the same period compared to last year? Are you trending towards what your budget was? What are you doing to achieve your plan for the year?

One of the things people commonly miss is looking at their income statement month over month. Examining 12 months of data reveal peaks and valleys that will catch your attention. Both income and expenditures can be subject to significant changes during this period.
Even though it may be overwhelming, you’re going to learn a lot from the process. Were the decisions you made effective?

One tactic that I recommend for business owners is to examine your five-year trend. If you’re concerned about recent issues, it may be helpful to look at how the dynamics have changed or stayed consistent over the past few years. Somehow it is easy to get lost in a year, but when you look back over the past three or five years, you will be surprised at everything achieved. And that’s one of the things that I always recommend to business owners.



Financial Report #2: Balance Sheet

Far too few people look at the balance sheet, even though it’s crucial information for everyone. A company’s balance sheet provides a more accurate picture of its financial health than its income statement. The revenue and expenses noted on an income statement are temporary, whereas a company’s assets indicate its current standing.

The liabilities are all the things you owe. And the equity is just like home—you look at what you owe and what’s leftover, and that’s it.
Companies do it a little differently from an accounting perspective. They use historical costs, so they don’t show market value to reduce risk.

How should people use a balance sheet to run their business?

The first thing I consider when reviewing my balance sheet is what assets do I own. Your biggest asset often will be cash as the first thing to consider in your balance sheet. We’ve talked before, and I believe cash is the most critical thing in a business.

It is like blood in your body that helps you stay alive; it needs to flow through your system. Cash can be lost, but if too much of it is lost, then eventually you will die as well. The same goes for businesses with regards to the loss of cash.

But as an entrepreneur, you want to be on top of your company’s assets constantly. Are they being used efficiently? It is also essential that you track and keep up with accounts receivable. Cash is when revenue becomes real. You’d rather have cash than a receivable.

You might also consider your liability (your accounts payable) and how much you are in debt. To make sure that the business stays on track, it is essential to maintain the assets and equity. It will be crucial for borrowing, and it will be imperative whenever you go to sell your business.

Financial Report #3: Covenant Projections

So every company that borrows or typically uses loans is subject to certain conditions laid out in the contract they signed with their bank. This covenant outlines how they are supposed to run their business. Lenders are more willing to lend money if they believe you will repay the debt.

People would not feel confident investing their money if they do not know how you will make it back and get the return on investment.
Because of this, covenants are extremely important. You want to investigate how your performance has been or is going, as the lender may cut off or go into receivership if you do not comply with the loan.

It pays to proactively look at your covenant forecasts to make sure you’re staying compliant with the established funding conditions. If you are out of covenant compliance or anticipate being out of it, let your lender know as soon as possible.

Be cooperative in dealing with your lender regarding issues and explain your plans to ensure it does not happen again. What you’re going to say is, here’s what happened, here’s where we’re at, and here’s what I’m going to do to make it better. This will go a long way. Most people are afraid to be upfront. They’re going to know because you have to report to them somehow.

Financial Report #4: Budget vs. Actual Report

You’d be surprised how many small businesses don’t do budgets.

If you fail to plan, you are preparing for failure. Entrepreneurs have great ideas, but it’s a separate task to plan financially and ensure good returns.
A budget is significant. As a result, you should have a yearly plan that states where you’re going to go this year. The difference between budgets and forecasts is that the latter will be updated as you go along. This report compares our budget (or forecast) with the actual results and analyzes where we are.

If you see a significant drop in revenue from your department’s budget, the first question to ask is: what happened? There could be perfectly reasonable reasons why it occurred that have nothing to do with performance.

There are many possible reasons for the decline in sales. For example, we may have lost half of our staff due to better pay in different industries or better opportunities elsewhere. Or we could realize our salespeople have failed to hit quota each month.

The funniest part about budgets is that the number you put on paper will rarely match up to your actuals. But if it does happen, then perhaps you are very good with keeping your budget, or there’s something wrong. When you’re hitting your company’s expected numbers, that is an excellent time to reevaluate the business plan. Budget numbers are meant to be flexible and dynamic.

Sometimes you need to make more investments.
Sometimes your sales do well.
Sometimes deals are bad for business.
Sometimes malfunctions halt production on machines in the shop.

However, this budget-to-actual analysis will highlight the issues you may not have realized and discover what is going on.

Financial Report #5: Accounts Receivable and Accounts Payable Aging Report

Since I was first going to school, I remember my confusion about accounts receivable and accounts payable.
Accounts receivable is a list of transactions you are yet to be paid. Receivables refer to money that a person owes you. On the other hand, we need to pay our vendor accounts and accounts payable. These are expenses that we owe.

It’s common to have an aging report, which will tell you how long invoices have been on either the Receivable or Payable sides. The information can be helpful in many ways. Customers who aren’t paying their bills and customers with concentrated credit risk should be given greater attention.
If someone is paying slowly, that’s a sign. You mean you’re not getting money yet, and revenue isn’t revenue until we receive cash. That’s not an accounting rule; that’s a business rule.

Critical factors in running a business are your customers, vendors, and employees- all of whom you aim to maintain strong relationships. Whom do you owe with payables?

Vendors should be considered partners in achieving your goals, much like how you want clients to view your business relationship.
The typical business allows its clients to pay for goods in 30-day terms. Again, it varies by industry. So if you’re starting to get 60, 90 days out, that starts becoming concerning.

If you’re paying the full price for an item without negotiating a discount, it’s reasonable to expect some benefits like early payment discounts. So you can get terms, one ten net 30. So that means I’ll give you a 1% discount if you pay in 10 days. When you start, I like to do simple math first. We are not getting into any fancy finance calculations. A 12% return is a great return. Or you could get, Two 10 net 20. That’s not exactly how it works out, but that just gives you an idea of the power of financing and how you could leverage that in your business.

Financial Report#6: Weekly Key Performance Indicators (KPIs)

To provide clarity, I’m a fan of KPIs and scorecards. As a quick review, KPIs are used to measure performance, and as the name suggests, they should be viewed weekly. Your financial information is usually not revealed for a period of five to 15 days after the month ends, depending on your company. For publicly traded companies, you’ll see three days after the month ends.

Businesses produce many types of reports internally, but the management report is your pulse on day-to-day operations.

It would help if you were sharing these reports with your team each week to assist you in fixing the issues and problems. Sharing this information will allow you to become more efficient, helping you save time and money. These KPIs are by department or functions, teams, or a few examples include marketing. It’s very company-specific. Maybe you’re looking at new leads; maybe you’re looking at conversions, new subscribers in marketing. There could be several things in sales like sales dollars, how much are you selling, quotas? What’s your margin percentage. Those are very common.

Operations typically, you’ll have a customer service like how quickly do you deliver your service? How efficient are you in your service? Accounting – a popular one is closed days. In HR, it might be employee turnover, or a big one is the cost to train a new employee. When we talk about employee turnover, it is so expensive when you think of the cost to hire, retain, or train to get them up to speed where the other employee is, depending on the position. This is anywhere from a three-month to a year curve, maybe even sometimes longer. And then for IT, it may be like user uptime, downtime, incident requests, those types of things.

One of the things that many people hear a lot about, and I think this is a great thing when you look at KPIs, is NPS, which is Net Promoter Score, so feedback from your clients. I have a passion for making sure that we serve our clients well and in our business. So that gives you good indications cause your clients are your key.

Financial Report #7: Industry-Specific Reports

Different industries require different standards, but there are typically some standard measures and metrics to consider. These reports may fall under operations.


The cost to produce your goods typically accounts for about half of your expenses. How much does it cost to sell a product? Knowing how quickly and efficiently you can take raw materials and turn them into finished products ready for sale is essential.

There are two ways I look at this. One is called the “rate variance,” and it measures how much an input costs you per unit. An example of that might be your labor rate or overhead spending. The other, called the “efficiency variance,” tells you how fast we can get something done.

And those are commonly called material usage, labor efficiency, or overhead or absorption. Those are essential warranty costs or defects are very important as well.


When looking at the construction industry, comparing bids with actuals is like comparing a budget with actuals. After long-term contracts, the question becomes how closely did you come to your bid whenever pricing?

You should monitor your work-in-progress reports in real-time to see how things are running if they’re going well or not. This allows you to make adjustments. A common problem we see in making these assessments is that change orders are never processed.

Procrastinating on change orders can cause problems, so it is best to discuss them earlier rather than later.

Distribution & E-Commerce

Distribution and e-commerce industries review topics like inventory turn, which is super important – the quicker inventory turns over, the more money can be reinvested. Issues like gas prices and oil costs play a huge role in distribution as well.

That is a huge pack and mark in the margin.


Fleet utilization is another major challenge for our clients. During peak periods, many of our clients set up each power unit or tractor as a profit center to keep fleets utilized. It’s crucial in transportation.

To summarize, they want to see what they are putting in and taking out of their fleets. They would like to study the cost implications for maintenance, repairs, fuel costs for each vehicle type, and the overall profitability of owning a fleet of vehicles.


The hospitality industry is seeing a resurgence. We look at metrics like average cost per plate or sales per plate, time on tables, and tickets because we want to upsell as much as possible for the greatest return. Many companies have adopted predictive analytics in the hospitality industry.

That’s important because it ensures that you have adequate labor during the peak hours when many customers show up, so having no one available would drive the customers away.

You have to make sure that you are matching your product with demand. Spoilage is a big problem in this industry, so you need to create the appropriate supply.


Those seven financial reports are critical for running a business well. It may seem daunting to start seven reports at once, but I would emphasize that it is crucial to divide them up and start with one or two at a time. And then you’re going to increase the number of reports gradually.

I always suggest business owners look at their income statement and balance sheet first. And some people like, “Hey, I don’t want to look at my income and balance sheet because I don’t know what it means.” That’s okay. Ask dumb questions. If that’s what you need to do to get educated, then do it by all means.

Your team leaders need to know that self-education is something you value and would recommend they take up as well. I’ve seen business owners who didn’t know and were initially afraid to become very educated and very financially strong.

You will have a pulse on your business if you start with three reports- an income statement, balance sheet, and key performance indicators (KPIs). These reports are essential if you want to see any profits from your efforts. It’s not that the task is difficult, but it needs the discipline to do this work consistently.

Then gradually increase to these seven financial reports that we think are great to review regularly.

Many reports are out there. I would love to hear from all of you guys; what are some of the key reports you use in your business? What’s been impactful. What’s been helpful. Let’s share it so we can share with the community in ways to help each other.

If you’d like to discuss getting better financial information for your business, please schedule a consultation. We’d be happy to help.

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