Especially when just starting out, small business owners need to keep a close eye on the financial health of their venture. Mature companies may decide to monitor financial and marketing reports quarterly. But for small businesses, monthly reporting is often a more useful way to measure success.
Monthly reporting can give you feedback on your pricing, marketing promotions, employee productivity, and growth. With this information, business owners can make better decisions around big purchases, leveraging or repaying debt, and expanding to new locations or verticals.
Profit and loss (P&L) statement
Your P&L statement, also known as an income statement, shows how much revenue was generated, the expenses incurred, and the resulting profit or loss over the course of the month. For your business to succeed, your revenue must exceed your expenses. Checking this report each month can show you whether or not you’re on track to cover your costs and generate profit.
Some business owners check this report quarterly; but by regularly tracking your expenses and revenue, you can better understand how small changes to your operations impact your financial success. If you are incurring losses each month, that’s a sign that something big needs to change.
Balance sheet
A balance sheet lists your company’s assets, liabilities (e.g., debts), and equity. Reviewing your balance sheet monthly shows a snapshot of your company’s financial position at a particular point in time.
“By comparing balance sheets from month-to-month and year-to-year, you can identify trends and make more informed financial decisions. You’ll also be able to monitor the key financial ratios that lenders use to determine your company’s health: liquidity and leverage.” wrote Lendio.
[Read more: Creating a Financial Accounting Report With the Four Basic Statements]
Balance sheets can help guide decisions around when to purchase an expensive piece of equipment, when to pay back a loan, or when to take your company public.
If your cash flow is looking weak — e.g., you have more cash going out than coming in — you may decide to get temporary financing or cut expenses.
Cash flow statement
Along with balance sheets, cash flow statements are an important indicator of financial health. A cash flow statement reveals your change in cash and cash equivalents from month to month. It uses the cash basis of accounting and classifies cash flow into three major categories: operating, investing, and financing.
If your cash flow is looking weak — e.g., you have more cash going out than coming in — you may decide to get temporary financing or cut expenses.
Accounts payable and accounts receivable
Keep tabs on your accounts payable (AP) and accounts receivable (AR). These two reports tell you how much you owe and are owed, respectively. Tracking your AP and AR helps with record-keeping, managing cash flow, and compliance. Reconciling these two accounts monthly will make sure no bills slip through the cracks and your customers and partners are paying your business on time.
[Read more: A Quick Guide to Accounts Payable]
Marketing engagement
Monthly reviews aren’t limited to financial reports—monitoring your marketing outreach is also important. See how your social media campaigns have performed by checking the native analytics for Facebook, Instagram, and any other channels you use to reach potential customers. Google Analytics and your email marketing tool can also give you insight into what’s working and what isn’t.
Customer loyalty
Customer loyalty isn’t found in a single report, but it’s worth compiling key metrics each month to understand whether your business is retaining customers or simply churning new customers. Create a report that summarizes key indicators such as:
- Customer retention rate.
- Negative churn.
- Net Promoter Score®.
- Customer effort score.
- Purchase habits.
- Referral traffic.
- Social media mentions.
Some of this data can be found in your point-of-sale system or loyalty program. Other metrics can be found in your marketing analytics. Since the cost of acquiring a new customer is five times higher than retaining an existing one, you want to keep tabs on whether your customers have a good experience with your product or service.
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