Quarterly Financial Review

At the end of each quarter, your business will be on target for success if you thoroughly review your financial data for that completed quarter. Business decisions made based on historical activities provide a strong foundation for the viability of a company. This means you can look at your last three months of activities to find areas where there may be too much expense or too little revenue (income). If you look at historical revenue and see a declining ratio, you would want to take actions to increase revenue and reduce expenses. This review would also help you begin measures to generate revenue in other areas.

As a part of my processes, I review my clients data and provide feedback that will help them remain financially healthy. I see too often that some businesses have never been provided a full explanation of their financial statements. Without an understanding of what the reports are saying, business owners are left in the dark. Reviewing financial documents is more than just printing them and explaining what money was received and disbursed. The health of a business vitally depends on consistently making a profit...even S Corporations (which are pass through entities). If your company or business is ALWAYS spending more than it brings in, there is a limited amount of time you will be in business. If you have been in the red for an extended amount of time, you are most likely running off of cash flow alone, which is highly dangerous to the health of the business. Why is this dangerous? If you operate solely on what cash is coming in, then you have no reserves to protect you in lean times. Eventually this can catch up with you, then you might be faced with the inability to make payroll or pay vital bills.

Every company, even S Corporations, should be fully aware of the current profit margin and their expense percentages at least on a quarterly basis. Having a constant profit margin of <1% is alarming. The ability to dissect the expenses and costs arising out of business activities can help an owner keep an eye out for times when the spending needs to be reduced. Proactive planning, instead of reactive planning, will ensure there are little surprises on monthly cash flow.

I developed a spreadsheet to help my S Corporation clients have a snap shot of profit margins and cash requirements. This tool shows when it may be time to reduce spending or cut costs to protect immediate sustainability. It also provides a toggle view of anticipated activity for the year to help grow cash reserves and retained earnings while taking into account the managing officers salary requirements before contributions can be calculated. You see, not all small business owners understand finance beyond cash flow and bills. Accountant (professionals) should be well versed in Accounting Standards to be a support system to business owners.

No business in the world can run its course blindfolded. The accountant oversight for business activity will shed light on operating costs, underperforming areas, overperforming areas, possible embezzlement, and much more. Accountants are trained to see inconsistencies, abnormalities, and the ability to guide businesses into better decision making.

Have a goal for your business, and talk to your accountant about how to get there. Things are more manageable when processes are organized and goals are being accomplished. Let your business's financial future be a healthy and viable one!

Dissect the finances