No matter if your business earns £5,000 or £5,000,000 in monthly recurring revenue, conducting a monthly review of your financials is crucial.
The Importance of Regular Reviews
Many SMBs review their financials sporadically throughout the year, and some lack a regular schedule. However, instituting monthly financial reviews can seem daunting if you’re unsure where to begin.
Why Monthly Reviews Matter
Effective management requires a clear understanding of your business’s financial status. Monthly reviews allow you to analyse performance, align with goals, and make informed decisions for growth. They compile essential financial data in one place, maintaining focus on long-term success and generating insights for value creation.
Review Components
To start, ensure you have:
- 3-5 key financial KPIs specific to your business.
- A formalised accounting process.
- Core reports compiled into a single source.
Key Financial Statements
Your reviews should cover:
- Cash Flow Statement: Analyses available funds for debt payment and expenses, highlighting new revenue opportunities and potential overhead reductions.
- Balance Sheet: Provides a snapshot of your business’s capital structure, helping identify cash shortfalls.
- Income Statement: Shows net cash after expenses, allowing you to manage costs and improve profitability.
Conducting the Review
Begin with a preliminary meeting with your accounting team to understand the financials’ preparation and address any issues. During the formal review:
- Analyse the income statement for variances greater than 5%.
- Monitor key financial areas over a 12-month period to detect trends and adjust for seasonality.
Discussion Points
- Each significant variance needs a detailed explanation and an action plan.
- Assess cash balances and check debts on the balance sheet.
- Discuss strategic long-term goals and resource allocation.
Conclusion
Monthly financial reviews are essential for all businesses. They help track performance against goals using selected KPIs and formal reporting processes. The review meeting should identify trends and variances, leading to strategic discussions about the company’s future and resource management. If outcomes don’t inspire confidence, it may be time to adjust strategies.
