The Big Six of Small Business

Dave,

In your opinion, why do most small businesses fail? I’d also be interested to know which business reports you believe are most valuable to a small business owner.

Prater

Prater,

There are many different reasons why small businesses go under. But in my mind, most fail due to poor financial management relating to cash flow problems caused by debt payments and a lack of budgeting. And these types of problems are often directly related to an owner having poor accounting practices and not staying on top of important numbers.

Believe me, I understand how overwhelming it can seem. But the good news is you don’t need a crystal ball to forecast and plan for the future of your company. Once you learn a few of the basics, you’ll only need a few hours a month to get a handle on where things stand—and where they’re headed. With that in mind, here are six financial reports I believe are crucial for small business owners to check every single month.

Sometimes called an income statement or P&L, this report shows revenue minus expenses, and either your net profit or loss. I still look at my company’s income statement every month. It gives me a quick snapshot of how each area of the business is performing.

This is a quick summary of who you owe money and the amount owed. If you owe something, pay it! It’s never a good idea to hold your money until the last second. My company clears bills every Tuesday, and that allows us to negotiate further discounts and build incredible goodwill with suppliers and vendors.

This report shows who owes you money, how much they owe and the age of their debt. You know how I feel about debt, so I recommend not extending credit to anyone. If you feel you absolutely have to, keep it short term—30 days at most.

Simply put, this is a record of all your open purchase orders, including quantity. The PO is a simple way to quickly review what’s been purchased and the cost of each item.

This is still the best way to verify that your bank account balance is correct, and with no errors. If you’ve ever kept a checkbook register for your personal account, this one will be a breeze. It’s just a turbo-charged version of the one at home that shows the checks you’ve written, deposits and your balance.

This simple document shows what your business is really worth. It lists all your assets and liabilities. In this statement you’ll see what you own, who you owe and revenue owed to you.

Trust me, Prater. If you set aside a little time each month to read and address these financial reports, it’ll be one of the best investments you’ll ever make!

Dave