Running a successful business seems to be the goal of every business owner. However, it doesn’t come on the silver platter! Business financial reports are like X-rays that help business managers, entrepreneurs and investors to know the financial health of the business. Business owners who want to stay in control and make a difference must appreciate the purpose and value of financial reporting.
Research has shown that the most successful businesses are run based on numbers. The numbers in your business are the key indicators of your business health and the future of the business. Ability to run a business based on financial reports is great skill!
So what are the top 7 financial reports for a small business owner?
- Customer Transaction Report:
This is the first financial report that every business has to keep track of and know. The Customer Transaction Report is simply an overview of your customers, sales generated through each customer and outstanding debts to be paid. This report gives business managers a glimpse into the effectiveness of the account receivable, sales and marketing functionality of the business!
Items to pay attention to in the receivables cycle:
- The longer an invoice goes unpaid the less likely it will ever be paid
- 26% of invoices 3 months old are uncollectable
- 70% of invoices 6 months old are uncollectable
- 90% of invoices 12 months old are uncollectable
- On average, businesses write off 4% of their Accounts Receivable!
- Supplier Transaction Report:
This is the report that provides snapshot of your suppliers. Every business—manufacturing, wholesale, retail or service based—need a kind of input to serve their customers. This report provides information about your suppliers, the outstanding debts due the company and the purchases made from each supplier. The report is most useful if its total matches the ending accounts payable balance in the general ledger.
The report can also be used to track the following:
- How much you owe your suppliers.
- How long you’ve owed your suppliers.
- Which of your suppliers you owe the most money.
- The credit limit your suppliers are giving you
- Inventory Valuation Report:
Accounting for your small-business inventory seems like a straightforward matter, but actually it is not. The method you choose can affect your taxes, the value of the total business, your ability to borrow money and your cash flow.
You must examine the implication of the valuation methodology prior to deciding on which way to go. Most small business software’s will allow the three common options; average cost, First in First out (FIFO) and Last In first Out (LIFO). Always talk to your advisor prior to embarking on the journey.
The Inventory Valuation Report analyzes the list of your items or goods, its movement from the supplier’s business through your warehouse to your final customer. The value of the item as it travels the process is dependent on the adopted valuation methodology.
The report can be used for the following:
- Identify goods present
- Reason for shortages
- Delivery problems
- Identification of slow selling goods.
- Cash Flow Report:
I’m always amazed when I run across Chief Financial Officers who don’t believe a cash flow statement is the most important part of the financial package when it comes to small business management. Small businesses run on cash and knowing where cash is and where it’s gone is among the most important things a small business owner must know.
Cash flow is simply the money coming into a business from sales and other receipts and going out of the businesses in the form of cash payments to suppliers, workers, etc. Cash receipts and cash payments in a trading period are not necessarily the same as the accounting revenues and cost applicable to that same period, reason being that customers need not pay cash for goods sold until sometime afterwards while the firm may not pay for materials and services used until afterwards.
The cash flow report provides an overview of the cash inflow and cash outflow in your business. The cash flow report entails the cash at hand, cash in bank and all credit card transactions.
Your cash flow report enables you to track the following:
- Tells you if you’re running out of money while you’re profitable
- Tells you if the owner is taking too much money out of the business.
- You will see the results of building inventory, letting receivables grow or paying suppliers more quickly
- How capital purchases take out money
- Tax ReportDefinition:
A VAT return shows how much VAT is due on Sales (output VAT) and how much VAT can be reclaimed on Purchases (input VAT) dictating how much is paid or reclaimed from GRA for a given period.
Any company that has a turnover in excess of the threshold as specified in the Income Tax Act (2016: GHC200,000) will need to contact GRA with the view to be VAT registered and complete a VAT return. Small business accounting software’s like SageOne have these returns built into the system. Just concentrate on the accuracy of the data capture (capture your sales and purchases) and the system will generate the returns for you.
- Bank Reconciliation Report:
A bank reconciliation is used to compare your cash records to those of your bank, to see if there are any differences between these two sets of records for your cash transactions. The ending balance of your version of the cash records is known as the book balance, while the bank’s version is called the bank balance. It is extremely common for there to be differences between the two balances, which you should track down and adjust in your own records.
If you were to ignore these differences, there would eventually be substantial variances between the amount of cash that you think you have and the amount the bank says you actually have in an account. The result could be an overdrawn bank account, bounced checks, and overdraft fees. In some cases, the bank may even elect to close down your bank account.
It is also useful to complete a monthly bank reconciliation to see if any customer’s cheques have bounced, or if any cheques you issued were altered or even stolen and cashed without your knowledge. Thus, fraud detection is a key reason for completing a bank reconciliation.
- Withholding Tax Report:
Withholding tax is the tax to be deducted from the ex VAT invoices of your supplier. The deduction ranges from 3% to 20% depending on the nature of the supply or the tax status of the supplier.
The tax is deductible from Suppliers who supply services to a company as independent contractors or consultants.
Image: Income Tax Login
The law requires a person effecting payment to another person to deduct the exact tax at source and pay it to the Commissioner no later than 15th of the following month. A withholding agent who fails to withhold tax is personally liable to pay to the Commissioner the amount of tax which has not been withheld.
With the help of Sage One Accounting, You will be able to get quick access to these financial reports and make wise and intelligent business decisions that will help your business grow.
Contact Multisoft Solutions to set up Sage One Accounting for your business.
Management Information Systems