Prepare Monthly Financial Report for Long-Term Goals

monthly financial report for small business

Keeping your financial affairs in order is crucial since it’s difficult for a firm to flourish without it. Financial statements serve as a formal record of the financial operations of your business. A thorough finance report conveys vital accounting data through daily, weekly, and monthly financial reports for a given period. You will have a better understanding of cash flow when you keep track of, organize, and analyze financial performances.

There are many financial reports that are necessary for businesses to manage. In the following blog, we will mainly focus on monthly financial statement

What is Monthly Financial Report?

The monthly assessment of the finance, matching of records, and bookkeeping maintenance to create reports are known as monthly financial reports. The records provide the detail of all of your company’s financial operations. Company financial reports give management a clear picture of the last month’s financial situation so they may evaluate future plans and decisions and have accurate reporting on the cash management, profit, and loss statements.

Every business should employ these three basic statements in their monthly financial reporting package:

  • Balance sheet.
  • Cash flow statement.
  • Income statement.

Together, these three financial statements give you a comprehensive picture of your company’s current financial situation and project its future growth prospects.

Balance Sheet

An organization’s assets, liabilities, and, if any, shareholder stock for the month or quarter in question are all listed on the balance sheet.

Assets = liabilities + shareholder equity

A balance sheet displays the company’s current financial situation. Assets are displayed on one side of the balance sheet, while liabilities and equity are displayed on the other. The sum of the two sides of the balance must match for your balance sheet to be considered correctly balanced.

You must put all of your company’s assets on one side of a piece of paper to produce a classified balance sheet. It includes

  • Any funds in bank accounts.
  • The market worth of any inventory.
  • Value of organization.
  • Technology and equipment that your organization may have.

You should list the liabilities of your business on the balance sheet’s opposite side, which include

  • Financial commitments or debts.
  • Bank loans.
  • Credit card balances.
  • Payables.

You can calculate the owner equity in your business by adding up all of your assets, totaling all of your liabilities, and then subtracting your liabilities from your assets at the bottom of your balance sheet.

Income Statement

The income statement, as its name implies, shows the revenue from sales as well as all of the operating costs. A monthly income report displays a company’s profitability during an accounting period, whereas a balance sheet gives an explanation of the financial health of a corporation at a certain point in time (month, quarter, or year).

The income statement is also known as the Profit and loss statement.

Profit = Sales – Expenses.

Here are a few steps to prepare an income statement.

  • Firstly, list the monthly sum in each row.
  • Display your company’s sales or net income for each month of the year.
  • After that, list each month’s business expenses in detail.
  • Display the profits as the difference between sales and expenses. It is also known as EBITDA (earnings before interest, taxes, depreciation, and amortization).
  • After that, subtract EBITDA from the total interest paid on your company’s debt for the year.
  • List your net income taxes, then make the appropriate deductions.
  • At last, subtract the year’s total depreciation and amortization from the total.

Cash Flow Statement

A cash flow statement displays the beginning and ending balances of a cash account over a given period of time. It essentially assesses how effectively the business generates cash flow to meet liabilities and meet operational costs. The CFS is an essential document for stakeholders since it enables them to comprehend a company’s liquidity and make wise investment choices. These cash flow statements are frequently presented on a monthly financial report. However, they can be prepared for any time span.

A cash flow statement examines three different kinds of activities:

Operating Activities – The routine tasks performed by a company that results in cash inflows or outflows. This will contain your net profits and losses minus your operating costs.

Investing Activities – Cash changes brought on by the sale or acquisition of real estate, machinery, plants, or any other long-term investment.

Financing Activities – These activities represent and report changes in cash levels resulting from the acquisition of a company’s own stock or the issuance of the company’s own bonds.

How to Prepare Monthly Financial Report?

how to prepare monthly financial report

Management, lenders, creditors, and investors use the financial statements to assess a company’s performance, liquidity, and cash flows. The processes below are included in the process of creating financial statements.

Step 1: Verify Receiving Supplier Bills

To confirm receipt of all supplier invoices, compare the receiving log to accounts payable. Add the cost of any unpaid invoices to your overall budget.

Step 2: Validate Customer Invoices

To confirm that all client invoices have been issued, compare the shipment log to the accounts receivable. Any unprepared invoices should be issued.

Step 3: Gather up Unpaid Wages

For any wages that had been earned but had not yet been paid as of the reporting period’s conclusion, accrue an expense.

Step 4: Compute Depreciation

Calculate the amortization and depreciation costs for all fixed assets in the financial statements.

Step 5: Determine Inventory Balance

To determine the ending inventory balance, perform a physical inventory count or use another approach. Utilize this data to calculate the cost of products sold, then enter the result in the accounting books.

Step 6: Bank Account Reconciliation

Perform a bank account reconciliation and make all necessary modifications in journal entries to align the accounting records with the bank statement.

Step 7: Update Account Balances

Update all balances from subsidiary ledgers to the main ledger.

Step 8: Review Accounts

Examine the accounts on the balance sheet, and use journal entries to change account balances to correspond to the supporting information.

Step 9: Examine the Finances

Print a draft of the financial statements, then check them for mistakes.

Step 10: Accumulate Income Taxes

Find out the incurring income taxes and make necessary deductions.

Step 11: Final Draft

Print off the completed month-end financial reports.

Why Do Monthly Accounting Reports Essential?

The following are some of the key ways that financial reports can benefit your company:

  • Provide vital information.
  • Keeps track of income and costs.
  • Make your taxes easier.
  • Aids in decision-making and financial analysis.
  • Compliance

It helps the business to monitor and analyze the cash flow of your business. So, without this data, it may seem impossible to comprehend how your company is doing financially. The outcomes may have an impact on your budgetary goals as well as pricing, projections, and client payment conditions. Moreover, the year-end versions of these reports also include income tax liability information.

Frequently Asked Questions

Who produces financial statements?

A bookkeeper usually produces monthly reports to aid in monitoring the company. In order to minimize taxes and plan financial plans for the coming year, accountants usually produce end-of-year reports.

How does accounting software help in creating monthly financial reports for small businesses?

Financial reports can be produced using online accounting software in a form that is easier to understand and visually appealing. With the use of these technologies, businesses can:
●      Make projections based on reliable data.
●      Effectively plan their budgets.
●      Monitor their sales, costs, and profitability.

What are the three major financial reports for small businesses?

The three major financial reports small businesses must prepare regularly are:
●      Cash flow statement.
●      Income statement.
●      Balance sheet.

What information must appear in a monthly financial report?

Write a brief summary of the action in the equity, liability, and asset accounts. Summarize activity from the income and expense accounts in the income statement. Display the amount of actual cash that was available throughout the period.

Author Details
Financial Advisor , The Bookify
Hi! I am Madeline Ortega, a financial advisor. I offer free financial tips. Since 2016, I have written more than 1,000 articles on managing your small business finances.

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