3 Reports Entrepreneurs Need To Determine Healthy Cash Flow

Cash flow is an important measure of a business's financial health, as it helps to determine its ability to pay bills, invest in new projects, and meet financial obligations. Yet, Statistics show "82% of small businesses fail due to cash flow." In this post I will discuss three basic reports that businesses should review each month, what they mean and how to access. Statistic site: https://www.score.org/resource/blog-post/1-reason-small-businesses-fail-and-how-to-avoid-it
Aug 16 • YourMoneyDr

Early Signs of Danger

Starting out as a solopreneur can be an incredibly exhilarating experience, fueling your excitement as sales pour in at lightning speed. However, amidst this rapid growth, the crucial tasks of securing the right advisors or establishing an efficient accounting system that generates valuable reports often get pushed to the sidelines. As your business flourishes and you begin to expand your team, the challenge of managing everything without clear numbers only intensifies, leaving you in a perpetual state of playing catch-up and no direction. Unfortunately, some business owners never fully overcome this hurdle, and that's when the threads holding everything together start to unravel. Let's make sure this doesn't happen to you.
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One factor that further clouds the financial picture is the persistent presence of excess bank balances resulting from consistent deposits and healthy sales. Yes, there are surplus funds in your bank account, but unfortunately, there are still outstanding bills and financial obligations that have not been settled yet.  What if the total bills end up being more than what you eventually end up collecting? What if you never collect?  There is a thing called “people (and businesses) not paying their bills" and it can be incredibly frustrating.

Dealing with slow or delinquent payments can put a strain on your finances and disrupt the cash flow of your business. It's disheartening to put in the effort to make a sale, only to have the payment go unfulfilled.

When customers or clients fail to pay their bills, it can create a domino effect of financial challenges for you. Not only do you have to shoulder the costs of providing the goods or services, but you also bear the burden of the associated expenses. This includes dipping into your hard-earned profits to cover the costs of making that sale. It's a drain on your resources and can hinder your ability to grow and invest in your business.

Moreover, the impact is further exacerbated when considering the additional taxes that come into play. The IRS, state, and sales taxes, as well as payroll taxes, can take a significant chunk out of your revenue. These obligations cannot be ignored, and failing to comply can lead to penalties and legal consequences.

Therefore, even if you manage to collect all the outstanding payments, you still have to factor in the tax liabilities that come with running a business.

Therefore, even if you manage to collect all the outstanding payments, you still have to factor in the tax liabilities that come with running a business.
With that being said, I present report number one, known as the Accounts Receivable Aging Report. 

Report #1 Accounts Receivable Aging Report

 It's essential to have strategies in place to minimize the risk of non-payment, such as establishing clear payment terms, sending timely reminders, and implementing solid credit control measures. By doing so, you can better protect your business from the negative impacts of unpaid bills and ensure a more sustainable financial future.

One strategy that can significantly contribute to this goal is the consistent and frequent review of your accounts receivable aging report. This report serves as a valuable tool, providing detailed information about your outstanding invoices, including the names of customers who owe you money, the specific amounts owed, and the duration for which these amounts have remained unpaid.

By regularly examining this report, you can gain crucial insights into the financial health of your business and make informed decisions regarding your cash flow management. It allows you to identify any potential bottlenecks or payment delays from customers, enabling you to take proactive measures in addressing these issues promptly. This not only helps to ensure timely payments but also minimizes the risk of bad debt and improves the overall efficiency of your accounts receivable process.
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Furthermore, by staying on top of your accounts receivable and actively following up with customers who have overdue payments, you can foster stronger relationships with your clients. Promptly addressing any outstanding invoices demonstrates your commitment to maintaining transparent and reliable business practices, enhancing trust and loyalty in your customer base.

In summary, regularly reviewing your accounts receivable aging report is an essential part of effectively managing your cash flow. It empowers you to monitor your outstanding invoices, take appropriate actions in addressing any payment delays, and nurture positive customer relationships. By implementing this strategic approach, you can optimize your cash flow management and contribute to the long-term success and stability of your business.

Report #2 Profit & Loss

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Are you generating a surplus or experiencing a deficit? With a profit & loss statement you can easily determine the answer.

This statement serves as a crucial compass for evaluating the results of your operations, providing a clear illustration of the amount you earned or invoiced for [what you sold], subtracted by the expenses you incurred.

One of the most significant benefits of the profit and loss statement is its ability to empower you to calculate your net financial outcome.

This vital metric represents the difference between your total revenue and your total expenses, revealing the true profitability of your business.

By scrutinizing this information, you gain the power to ascertain whether your business is on track to achieve its financial goals. Let's not forget about the importance of identifying any financial red flags. The profit and loss statement acts as a financial radar, alerting you to any potential issues that may hinder your business's success.
With this crucial information in hand, you can implement strategies to optimize profitability and address these challenges head-on. You become equipped to make smart decisions that will propel your business towards greater financial success.

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Furthermore, the profit and loss statement serves as more than just a tool for your own benefit. It acts as a point of reference for various stakeholders, such as investors, lenders, and potential business partners. These individuals rely on this document to evaluate the financial performance and viability of your business. The profit and loss statement can significantly influence their decisions regarding investment or collaboration opportunities. It demonstrates your commitment to transparency and provides them with the confidence they need to engage with your business.

Tap into the power of meticulously tracking your revenue and costs through the profit and loss statement.It provides valuable insights into the effectiveness of your sales efforts and the efficiency of your overall operations.
It holds the key to unlocking insights and motivating you to achieve greater success.

Report #3 - Balance Sheet 

Are your efforts to build wealth through a business yielding positive results or do adjustments need to be made?
This is one of the primary purposes of a balance sheet.  It's to unveil whether you are going in the hole or steadily climbing out of it.
Since we don't hear about balance sheets too often, let's deal with terminology first.
It provides a snapshot of your assets (things of value), liabilities (amounts you owe others), and equity (your ownership stake).

It shows the big picture, not just invoices and payments, and flow of paying bills.It's a powerful tool to gauge whether you have successfully increased your overall wealth or if unfortunate circumstances have led to losses.

By analyzing the financial data presented in your balance sheet, you can make calculated decisions that align with your long-term financial goals and aspirations. 

It allows you to:

- identify areas where you may be overspending or allocating resources inefficiently, potentially leading to financial instability. 
 - highlight areas of strength, such as investments that generate consistent returns or expenses that have been reduced successfully.
- make informed choices regarding investment opportunities, debt management, and overall financial planning.
gain valuable insights into your financial standing, enabling you to determine if you are heading towards a state of fiscal success or finding yourself in a precarious situation.

By carefully examining its contents, you can determine if you are successfully increasing your wealth, avoiding financial pitfalls, and making progress towards a stable and prosperous financial future.

Take a moment to reflect on your balance sheet. It's a powerful tool that reveals whether you've grown your wealth or faced setbacks. It shows whether you're sinking deeper or making your way to the surface, and most importantly, it determines if your efforts are yielding results.

Need a Way to Get These Reports?

Is your business up and running with no accounting system in place?  No judgement here! We know that at times the sales pour in with such speed that there isn't a moment to spare for establishing systems.  Occasionally, it's just that the ideal expert hasn't yet offered the perfect solution tailored just for you.

Well, nice to meet you! 
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We've got this awesome FREE guided walkthrough just for you with two amazing accounting system platforms that you can choose from. And here's the best part: you can do it all right from your phone! All you need to do is swipe left and right or use the handy dropdown menus. It's super easy, and you'll be set up and caught up in no time. So why wait? Let's get started on this exciting journey together!

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