The primary purpose of business is to generate positive cash flow and make a profit, both of which are determined by two factors: money coming into the business and money going out of the business. As long as the money coming in is more than the money going out, you will be smiling. But what if the scenario changes and money going out is more than money coming in?
Will you even know if your business is not making a profit and/or generating enough cash to stay afloat? If you check the financial figures sporadically you might pick up that something’s going wrong eventually but then it might be too late to save the business. If you check the figures religiously once or twice a month and make comparisons between months, you will discover quickly when profitability and cash flow changes for the worse, and you will be able to take steps to rectify this sooner rather than later and have a fair chance of saving your business.
Checking up on your business’ financial affairs at least every month is a good business practice that will help you as a business owner/manager to stay on top of what’s going on in the business. It is crucial to stay in touch with what’s happening elsewhere in the business especially if you are not involved in the day to day running of the business or if the business have grown and you had to delegate some of your workload to others.
Using a checklist regularly and interpreting the results accurately, enables a business owner/manager to get a bird’s eye view of the business in a relatively short period of time. Some of the most important points which should be included in a monthly financial checklist are:
Indicators of the financial health of a business are calculated from the financial reports and financial statements. By paying attention to these indicators and comparing them from month to month, you will be able to spot trends in the business and the industry in which it operates, and take appropriate action if and when required.
No two business’ checklists will look the same as every business is unique so use caution if you use a standard checklist that has not been customised for your unique business setup. Lastly, make sure you know how to interpret the results you get from working through the checklist otherwise the use of the checklist will just be a waste of time.
If you would like to implement the use of a monthly financial checklist in your business or improve the financial checklist you are currently using, do contact your financial adviser for professional assistance and advice suited to the specific needs of your business.
Good practice checklist for small business by CPA Australia
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. (E&OE)