Running a business without reviewing your financial statements is a bit like driving with your eyes closed. You might get lucky for a while, but sooner or later, you’ll hit something expensive. Reviewing your small business reports each month helps you stay in control, make informed decisions, and spot opportunities (and problems) before they spiral.

Many small business owners get financial statements, but they just glance at the bottom line and then file them away. But there’s plenty more you can learn from taking a deeper look at your company’s financial position, results of operations, and cash flow.

Let’s break down the most critical financial reports you should review every month and what each one tells you.

Income Statement

Think of your Income statement, also known as a Profit and Loss (P&L) Statement, as your business’s report card. It shows your revenue, expenses, and net income (or loss) for a given accounting period, usually the month, quarter, or year-to-date.

Why the income statement matters

Reviewing your income statement regularly helps you see whether your business is actually profitable or just busy. You can identify which products or services are performing well, where expenses are creeping up, and how your margins are trending over time.

What to look for in your income statement

Compare this month’s net income to last month and to the same month last year.

Scrutinize all expenses. Are they necessary? Do they align with your business goals? How have they changed over time? If your cost of goods sold or operating expenses jumped unexpectedly, it’s time to dig deeper.

Compare your company’s financial performance with your forecasted revenue and expenses.

Calculate your gross profit margin, operating profit margin, and net profit margin ratios.

• Gross profit margin = Gross profit / Revenue x 100
• Operating profit margin = Operating profit / Revenue x 100
• Net profit margin = Net income / Revenue x 100

These financial metrics tell you how much of every dollar in sales you keep after deducting expenses. A higher profit margin means you’re more profitable and efficient at turning revenue into profit. Compare your margins to industry benchmarks to gauge your company’s financial health.

Balance Sheet

Your Balance Sheet gives you a snapshot of your business’s overall financial health. It shows what your company owns (assets), what you owe (liabilities), and what’s left over (equity) at a specific point in time.

Why your company’s balance sheet matters

According to the Harvard Business School Online, “there are few financial statements more important than the balance sheet.” It helps you understand your business’s liquidity and stability. Can you cover your short-term obligations? Are you building equity or digging into debt? This report reveals whether your business is positioned for growth or needs a course correction.

What to look for in your balance sheet

Review your current assets (cash, accounts receivable, and inventory) and your long-term assets, like fixed assets. Compare current assets to current liabilities by calculating your current ratio.

• Current ratio = Current assets / Current liabilities

A ratio above one generally indicates your business can cover its short-term debts. But watch for growing liabilities or shrinking cash reserves. They’re red flags worth investigating.

Lenders and investors often review a company’s balance sheet when deciding whether to approve a bank loan or invest. They tend to focus on long-term debt and shareholder equity to see what the business owes to others and what the owners have personally contributed.

If you’re looking to raise capital for future growth, pay attention to these numbers.

Cash Flow Statement

Your Cash Flow Statement shows exactly how money moves in and out of your business. It’s divided into three sections:

1. Operating activities. This is cash generated from your core business operations.
2. Investing activities. This is cash inflows and outflows from the purchase and sale of long-term assets and other investments.
3. Financing activities. This is net cash flow from all activities involving debt, shareholder equity, and dividends.

In short, it explains why your bank’s cash balance looks the way it does.

Why your company’s cash flow statement matters

Profit doesn’t always equal cash. You can show a strong profit on paper while struggling to make payroll if you have a negative cash flow.

Regular cash flow analysis helps you anticipate shortfalls, plan for upcoming expenses, and avoid scrambling for funding at the last minute.

What to look for in your statement of cash flows

Focus on cash from operating activities. This is the day-to-day cash inflow and cash outflow from your regular business operations. Ideally, you’ll see a positive cash flow to keep your business running. Negative cash flow over several months could indicate a deeper issue with collections, inventory management, or pricing.

Take a close look at positive investing cash flow. A company that regularly sells off operating assets to bolster cash flow is unlikely to survive. Negative cash flow isn’t always a bad thing in the short term. You might have negative cash flow during the accounting period because you invested in equipment or other assets that will drive future growth.

“Cash is king” may be cliché, but only because it’s true.

Why Reviewing Monthly Financial Statements Matters

When you review your financial statements regularly, you shift from reactive to proactive management. You’ll be able to:

• Spot trends before they become problems
• Make informed decisions about hiring, inventory, borrowing money, and pricing
• Strengthen relationships with lenders and investors by knowing your numbers
• Reduce surprises when it’s time to pay income taxes

Even if you outsource your accounting, don’t hand off responsibility entirely. These small business reports are your dashboard, helping you steer your business in the right direction.

Turning Your Numbers Into Know-How

Taking time each month to review your income statement, balance sheet, and cash flow statement isn’t busywork; it’s business intelligence. You don’t have to love numbers to appreciate what they tell you: where you’ve been, where you stand, and where you’re headed.

And if that still feels a bit daunting? That’s okay. Grab a cup of coffee, sit down with your reports, and remember, you’re uncovering insights that drive better decisions.

If you’d like help reviewing your small business reports or understanding what your financial statements are really saying, reach out to Countless. We can help you turn data into direction and give you the clarity to move forward confidently.