The Accounting Reports Every Small Business Needs

Income statement: are you making money?

The income statement, also called profit and loss, shows revenue minus expenses over a period. Run it monthly and compare it to prior months.

It answers one question: after all costs, did the business earn a profit? Look at gross profit (sales less direct costs), operating expenses and net profit. Compare each line to the previous month and the same month last year. A rising expense line that outpaces sales is the earliest warning sign.

For a walk-through of each line, see the income statement explained and how to calculate net profit.

Balance sheet: what you own and owe

The balance sheet is a snapshot of assets, liabilities and equity at a date. It shows your cash, receivables, inventory, debts and net worth in the business.

Assets equal liabilities plus equity. Review it monthly to see whether cash is rising or falling, whether receivables and inventory are piling up, and how much debt you carry. The relationship between current assets and current liabilities tells you whether you can cover near-term bills. Learn more in understanding the balance sheet and income statement vs. balance sheet.

Cash flow statement: where did the money go?

The cash flow statement shows cash in and out from operations, investing and financing. It explains why a profitable business can still run short of cash.

Profit and cash are different. You can be profitable on paper while customers owe you money or you have spent cash on inventory. The cash flow statement reconciles the two. Check it monthly. If operating cash flow is negative for several months while profit is positive, look at receivables, inventory and payment terms. See cash flow vs. profit and what goes on a cash flow statement.

Aging reports: who owes you and whom you owe

Accounts receivable aging groups unpaid customer invoices by age. Accounts payable aging does the same for your bills. Both guide your daily cash decisions.

Receivables aging usually buckets invoices as current, 1-30, 31-60, 61-90 and over 90 days past due. The older the invoice, the less likely it is to be paid in full, so follow up early. Payables aging shows which bills are due and helps you take early-pay discounts and avoid late fees.

Illustrative example: if $18,000 of your $60,000 in receivables is over 60 days old, that is 30 percent of what customers owe you sitting in the danger zone. Call those customers this week. See accounts payable basics.

Budget vs. actual and a few extras by business type

A budget comparison shows where spending departs from plan. Add inventory, payroll and sales reports if they apply to your business.

Set a simple monthly budget and compare. Large variances deserve an explanation. Then add reports that fit your model:

• Inventory valuation for retailers and makers.
• Payroll summary for businesses with staff.
• Sales by product or customer to find top earners and risky concentration.
• Job costing for contractors and project-based work.

A good budget helps in a funding application too. See our business budget template and the broader financial reporting guide.

A monthly review routine and why lenders like it

Close the books each month, run all reports, review for 30 minutes and write down three actions. Clean reports also speed up any financing request.

1. Reconcile bank and card accounts.
2. Record outstanding invoices and bills.
3. Run the income statement, balance sheet and cash flow statement.
4. Review both aging reports.
5. Compare to budget.
6. Choose three actions for next month.

Funders ask for bank statements and sometimes financials. ROI Funder considers a complete file the application plus 3 months of business bank statements, and we look for 500+ FICO, 6+ months in business and $20,000+ monthly revenue. Organized records help any funder see your business clearly. If cash timing is the issue, a line of credit can bridge it.