The Importance of Financial Reports: What Every Business Owner Should Be Reviewing

Kim Bernstein
Mar 24
3 min read

Running a business isn’t just about making sales—it’s about understanding your numbers. Financial reports give you insights into your business’s performance, help with decision-making, and ensure long-term success. But which reports matter most? Let’s break it down!

1. Profit & Loss Statement (P&L) – Are You Making Money?

📌 What It Is: Also called an income statement, this report shows your revenue, expenses, and net profit over a specific period.

📌 Why It Matters: It tells you if your business is profitable or losing money.

📌 Key Metrics to Watch:

Revenue: Total income from sales.
Cost of Goods Sold (COGS): Direct costs of producing your products/services.
Gross Profit: Revenue minus COGS—shows how efficiently you're producing and selling.
Net Profit: This shows what’s left after all expenses are paid.

📌 How Often to Review: Monthly & quarterly.

2. Balance Sheet – What’s Your Business Worth?

📌 What It Is: A snapshot of your business’s financial health at any given time.

📌 Why It Matters: Shows what your business owns (assets), owes (liabilities), and the net worth (equity).

📌 Key Metrics to Watch:

Assets: Cash, accounts receivable, equipment, inventory.
Liabilities: Loans, credit card balances, unpaid bills.
Equity: The value of your business after debts are paid.
Working Capital: Current assets minus current liabilities—indicates liquidity and short-term financial health.

📌 How Often to Review: Quarterly & annually.

3. Cash Flow Statement – Where Is Your Money Going?

📌 What It Is: A report tracking the movement of cash in and out of your business.

📌 Why It Matters: Profitability doesn’t always mean positive cash flow! This report helps avoid cash shortages. Even if you're showing a profit on the P&L, you could still have negative cash flow due to slow-paying clients or large investments.

📌 Key Metrics to Watch:

Operating Cash Flow: Money from daily business activities.
Investing Cash Flow: Money spent on assets or investments.
Financing Cash Flow: Loan payments, funding, or owner withdrawals.

📌 How Often to Review: Weekly & monthly.

4. Accounts Receivable & Accounts Payable Reports – Stay on Top of Payments

📌 What They Are:

Accounts Receivable (AR): Money owed to you by customers.
Accounts Payable (AP): Money your business owes to vendors.

📌 Why They Matter: Helps manage cash flow and ensures you’re getting paid on time while avoiding overdue bills. Also review AR/AP aging summaries to spot overdue payments or bills.

📌 How Often to Review: Weekly & monthly.

5. Budget vs. Actual Report – Are You Sticking to Your Plan?

📌 What It Is: Compares your actual income and expenses to your budgeted amounts.

📌 Why It Matters: Shows if you’re overspending or need to adjust financial goals. This report also helps improve future budgeting by showing trends and variances.

📌 How Often to Review: Monthly & quarterly.

Final Thoughts

Understanding your financial reports isn’t just for accountants—it’s essential for business owners who want to grow, make informed decisions, and avoid financial surprises.

Need help making sense of your numbers? KB2 Bookkeeping & Tax is here to help! Contact us today to take control of your financial success. 🚀