This short transcript of a November 30, 2023 video by Bob Gauvreau outlines the monthly financial reports business owners should review with their bookkeeper. It emphasizes three primary reports—income statement (profit & loss), balance sheet, and cash flow (period-to-period changes)—and recommends supplementary aged accounts receivable and accounts payable reports to monitor collections and upcoming obligations.
Chapters
All right, so let's talk about what monthly reports you should be looking at with your bookkeeper when it comes to your business financials. And there's a few key ones that we want to make sure that you have on your list. The very first is your income statement or your profit loss. That's going to be the area that has all of your revenue and expenses on there, including the breakdown of expenses that are direct expenses. That should give you a gross profit amount and a gross profit margin as well as your overhead expenses. We want to be looking at this for a few things. Again, we want to identify our gross profit. Super important. We want to make sure that we're charging enough and that we're delivering efficiently enough. We want to make sure as well that our business is actually making a bottom line profit. So we want to look at this. We should probably be able to identify by reviewing this as well if there's any issues or misallocations. There has to be a confidence level, we with the individuals or the team that are pulling this information together. Otherwise these reports aren't as valuable as they should be. The second report we want to look at is going to be our balance sheet. This has got our list of assets and liabilities that are included in our business. Assets being our cash, our accounts receivable, our inventory, prepaid expenses, capital assets, including vehicles, equipment, machinery, any of those. So we should be tracking this on a regular basis. So if you've gone and you've added a new vehicle, or you've added some inventory, or your cash balance should be going up because you've been collecting a lot of money, this should be reflected on your balance sheet. You should be able to see this, the exact opposite. On the second half of the balance sheet is your liabilities. So your accounts payable, your sales tax payable, your business tax is payable, your wages payable, any long term debts, vehicle loans, bank loans, anything like that, those should all be showing up on the liability section. Again, if you've taken on a new debt because you've acquired a new asset and use bank financing, that should show up. One of the essentially founding benchmarks that I would look at with a balance sheet is to say this is going to be, we're going to look at this, but we're going to have a preconceived expectation of what we should see on there. So if I'm looking at my balance sheet, I should know, well, my bank account has $50,000 in it. When I look at my balance sheet, it should be Reflective of that. If I have accounts receivable, and I think about $50,000 of people owe me money, and I see that it's $200,000, well, that's a problem. So I should be looking at that. But I should have an expectation when I'm reviewing these, both for your bank statement or for your balance sheet and your income statement, you should be looking at these with a preconception of this is what I feel they should look like. Right? And then we're taking actuals and we're looking at that and saying, how do we compare the differences? If I expect $100,000 in my bank account and there's 10, okay, we need to review that, and we need to have an analysis of why it's not what I thought it should be. So the third statement that we should really be looking at is cash flow. And as we know, cash is king. So a lot of reports and a lot of programs don't really do a great job on a cash flow reporting statement. So this is how I look at a cash flow report. I actually take your balance sheet and I look at it compared to the previous period. So if I say this month versus last month, let's say, for example, it's September 30th, I would look at September 30th and August 31st, and I look at the transformation of that one period to another. So, for example, October or, sorry, August 31st, we have 50,000 in the bank account, and September 30th, we have $100,000 in the bank account. That's a positive change in cash of $50,000. I would look at that for all of my assets and liabilities. Because here's the thing. Cash flow is actually driven by profits and the change in assets and liabilities. So when I look at this and I say, okay, accounts receivable went up from one period to the next. Accounts receivable going up is not good for cash flow. It might mean that we sold more and that we've got more accounts receivable, but that we haven't collected it. So that likely means that our cash is going down. If we have more inventory, our cash is likely going down. If we have more assets, like we bought a new vehicle, our cash is likely going down. Same with the liabilities. If we're looking at accounts payable and they go down, that likely means our cash went down. Why? Because we've spent more money paying off our payables. If our bank loans go down, that means cash was used to pay off our bank Loans. So we could actually have a really great profit in one period and have negative cash flow in the exact same period because we're paying off liabilities or we're adding extra assets. This is probably the most important report you need to be looking at. We need to make sure that we're making money. We need to make sure that our gross profit is good, but we want to make sure that our cash flow is in check. All right, so those are the three big reports. Supplementary reports I'd be looking at with my bookkeeper on a monthly basis would include my accounts receivable and my accounts payable reports. Accounts receivable report essentially shows you all of the people that owe you money and, and at what time they started owing you money. So typically when we look at an accounts receivable report, it's an aged accounts receivable report that shows over the last 30, 69,120 days when people started owing us money and if they've repaid us at that point. This is important because the longer that that transaction has been outstanding, the less likely we're going to actually collect it and put cash in our bank account. When businesses are owed money from six months, 12 months ago, the likelihood of somebody actually paying that bill drops substantially. So we want to make sure that if we offer that as a solution that we're financing our clients projects that we're collecting that money as quickly as possible. I mentioned accounts payable as well. I would always want to look at the accounts payable report to make sure that we understand what liabilities we have. And you know, for a contracting business, for example, we might have a lot of purchases from like a home hardware or Home Depot, what's due in the next 30 days. I want to know what my cash outflow and what my obligations are, because I also want to track my cash inflow, what that should look like. This way I'm helping manage my expectations from a cash flow management standpoint. So those are the major reports that I would have and look at on a monthly basis with my bookkeeper. Again, the income statement or profit and loss, the balance sheet, a cash flow report, which might be a balance sheet over time. I'd be looking at my accounts receivable age summary to see who owes me money and aggressively go after them. And my accounts payable summary. I want to know what my obligations are from a cash flow standpoint over the next 30 days, with money going out.
