Everyone usually highlights that business owners need to know their Financial Statements. These are your Income Statement (also known as the Profit and Loss), Balance Sheet (which shows the net worth of your business), and Statement of Cash Flows (which tells you where your cash is going).
However, there is a lot more information that you can learn about your business. I want to highlight three reports that are hugely valuable, and should be looked at on a monthly basis. This post will share what these financial reports are, and why they are so great.
The first one is your A/R Aging Summary report.
A/R stands for accounts receivable, and that ultimately means money that you are expecting to receive. So put even more simply, this is a summary report of the invoices you’ve sent that haven’t been paid yet.
This report will show your outstanding invoices in several categories: invoices that are current, 1-30 days late, 31-60 days late, 61-90 days late, and lastly any over 91 days. This is great information because it will tell you if you have a process issue when it comes to collecting payment. To make cash flow is good as possible, you want to receive payment as soon as possible. If the majority of your clients are paying invoices after they are more than 31 days overdue, it’s time to change your approach.
Some ideas – verbally communicate invoice terms (like if you expect them to pay on receipt, or if you give them 10 days, or 30 days to pay) when you set up the work engagement. Then establish a process for reviewing this report each month, and assigning somebody to email, then call every client who is overdue. You want to make sure that you are getting the money due to you!
The second report you want to pay attention to is the Sales by Customer Summary report.
This report tells you how much of your sales is coming from each client. It will give you hints on who your ideal client really is – because let’s be honest, the most ideal client pays you for your services and comes back for more. It will also give you insights on what upselling works best for your clients. And my favorite reason to look at this report is to decide who you should engage for a customer advisory meeting.
What is a customer advisory meeting you ask?
Well, it’s a meeting where you treat your most profitable clients to a lunch or dinner and pick their brains. You show them that you value them, not just be giving them a great experience, but also by directly thanking them for being such a great client and inquiring how you can serve them better.
When I worked corporate, occasionally our vendors would do this with us. I always thought it was brilliant, especially when they brought multiple clients together. We got to hear how each of the other business was using our vendor, and we got to make improvement requests that were often echoed by others. It definitely made me feel heard and appreciated. You can do this with your best clients!
Lastly, you need to pay attention to you A/P Aging Summary report.
A/P stands for accounts payable. Simply put, this is your bills. This report will show you how much you owe to each of your vendors and when the payments are due. This helps you manage your cash!
Pay the vendors by their due dates, not as soon as you have the cash to pay them. This way if something comes up in your business, you can use your cash wisely.
The Accounts Receivable and Accounts Payable reports are important tools for forecasting your cash flow. Remember for a business can bring in a lot of money, and even be profitable, but with zero cash they have no lifeblood.
