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This is Part 6 (the last installment) in our “Know Your Numbers” series, which will help you read your financial statements, better understand the numbers that drive your business and ultimately make better decisions.


In Part 5, we looked at important decisions that are easier to make when you have key financial information handy. In this final installment, we’ll discuss how often to review your numbers.

As your business gets into a regular cadence of ongoing financial recordkeeping, you’ll discover certain metrics that are meaningful on a daily, weekly, monthly, quarterly and annual basis. Each time period serves a different purpose for you and your business. In general, financial numbers over shorter time periods provide a bit of insight into how things are going, while information assessed over longer time periods tend to be more useful for strategic decision-making.

Daily

Business changes fast, and with myriad decisions required each day, it’s important to end your day (or start the next day) knowing a few key financial numbers. The exact types of numbers vary based on your company size, industry and business activity. At a minimum, most types of businesses should track cash balance, employee absences or number of overtime hours worked, plus the financial requirements to accomplish a day’s activities.

Weekly

A weekly financial review helps with even more decisions. We recommend creating a weekly report with a cash flow summary: cash collected and expenses paid during the week, along with other important movements of cash such as deposits held or transfers to other accounts. This cash flow statement will help you keep a pulse on your company’s ability to pay bills in cash and accomplish your goals.

Other financial numbers to review weekly include your billable hours, number of jobs completed, number of jobs in progress or past due, plus summaries of who owes you money or who you owe money.

Monthly/Quarterly

The monthly or quarterly financial time period provides a reliable time period for understanding margins and financial performance indicators. These 4-13 week increments break down your financial year into manageable pieces while painting a better picture of reality than your daily and weekly operations.

Each month or quarter, look at your total sales versus total expenses. Then, understand your beginning and ending cash balance for context and feedback on the results of your company’s efforts.

Other important monthly and quarterly numbers could include your number of employees, number of customers, as well as the ratio of customers gained versus customers lost during the time period. Another good check-in number is your credit score. This quick check can alert you to any issues and tell you if you can get credit or draw on financing if necessary.

Annually

There are a number of key financial metrics and documents that are best to generate and review on an annual basis. They include:

Tax return

Each year, all taxpayers have the opportunity to summarize and report their income to the government. For some, this is a painful process because they haven’t put processes in place to track and monitor their financials throughout the year. With good systems for keeping track of your financials throughout the year, the annual report or summary is much easier and serves as a key strategic document that helps you measure results.

Tax returns are created using specific tax rules, which can be manipulated by timing transactions or making other special provisions. However, for many people, their annual tax return provides a pretty good yard stick of total income for the past year.

With a well-planned tax return, you’ll know your total adjusted gross income, your taxable income and what you owe for taxes. Your tax return also provides other important financial indicators, including your earnings, investment income (interest and dividends paid out), retirement and/or social security distributions, real estate taxes and charitable contributions for the year.

Net worth statement

A net worth statement is another key financial document that’s best reviewed on an annual basis. This report will give you a summary of your total assets versus your total liabilities, which equals your net worth: an excellent measuring stick for tracking overall wealth on an annual basis.

Debt coverage ratio

Your Debt Coverage Ratio measures whether you have enough cash flow to pay current debt obligations. Your lending institution will likely review your financial statements on an annual basis (sometimes even more often) in order to evaluate this ratio. Even if your business doesn’t have any existing loans, reviewing this number is helpful for industry benchmarking purposes in case you need financing in the future.

Now, you know your numbers

We started this blog series by asking a question: Do you know your numbers? After reading these six articles, we hope you have a better understanding of how to read your financial statements, better understand the numbers that drive your business, make better decisions and answer that question with a confident “Yes!”

If you ever need help gathering or interpreting financial information for your personal life or business, we’re here to help. Get in touch to learn how to grow your business, make more informed decisions and maximize tax savings.