Tap the Power of Financial Reports

A Lesson in Proactive Financial Management

What does proactive financial management mean? It means taking an active role in managing the finances of your company. Frequently when I visit clients I find that they rarely run reports on a consistent basis. I can not stress often enough the importance of knowing where your business stands financially. The whole premise of WHY a business owner buys QuickBooks is to manage his business better. It is NOT about making things neat for the IRS or for your accountant at year end. I find that the clients who do run reports and watch their bottom line are the ones that tend to be more successful.

Monthly reports should consist of the Profit and Loss and Balance Sheet at the bare minimum. The profit and loss should be run in a variety of ways. A Standard Profit and Loss (I call it the plain vanilla) will tell you the income and expenses for the month.This should be run AFTER you have done a bank reconciliation. Review this report and analyze it for anything that looks irregular. Use the zoom feature to find the detail if you question any figures. You can customize this report to read the percent of expense in relation to income (Go to Customize and check off the appropriate items). This will tell you information such as your payroll is 40% of your expenses or that office supplies are running at 25% of the overall expenses. As part of the business management service (See Summer 1999 Newsletter) we run your numbers against industry standards to help analyze your figures.

Another profit and loss report that is excellent and one that I personally run frequently is the Profit and Loss Previous Year Comparison. This tells you how you are doing compared to last year. There is no better marker for analyzing trends and patterns in your business the information you get from this report. If you were using any other automated accounting package in the previous year and you have the printouts just customize QuickBooks reports to duplicate the layout and analyze the reports.

The Balance Sheet report tells the true health of the company. Each line tells the balance of that account as of a specific date in time. If the chart of accounts is set up correctly and all the balances are correct this report will be more valuable than the Profit and Loss when applying for a loan. All your assets, and this means everything that has a 5 year life span, should be entered as a fixed asset. Fixed assets include, desks, computers, copiers, and fax machines etc. The bank accounts should be accurate and reconciled monthly. The accounts receivable should match the total on you’re A/R summary. The accounts payable should also match the total on you’re A/P Summary. Any loans that you have should show up as a liability and have a balance that agrees with what the bank or note holder says you owe on the principal amount of the loan. Some banks give the principal and interest breakdown on each payment: be sure you break this down as principal against the loan and interest expensed. If you don’t get a breakdown of principal and interest call Better Bookkeeping and we will run an amortization schedule (a report that tells you how much principal and interest is paid with each payment) and fax it to you free of charge. The retained earnings are nothing more than the accumulated profit and losses since the beginning of time. For example the first year the company was in business it made a profit of $1000.00, the next year it lost $400.00 the retained earnings would be $600.00. Say in the next year it made a profit of $3000.00, the retained earnings would be $3600.00. This is why if you only bring a profit and loss to the bank they will ask for a balance sheet. You can have a great year but if you have been losing money for the last 10 years and have retained earnings of a loss of $6000.00. The bank will be looking at this and so should you.

QuickBooks makes it easy for you to run reports and know where your business stands at all times. Take advantage of this! Maybe you need to increase prices, lower payroll, reduce office expenses. These reports should be instrumental in how you manage your business and will help you monitor and manage the financial health of your company. These reports are all proactive financial decision making tools that will give you the information you need to help make informed decisions on when these types of changes are necessary.