Yet many private companies only get financial statements, which is a scorecard for their business, once a year.
Performance measurement is the main reason why all companies should prepare and review financial statements at least monthly.
Three main areas should be tracked: Cash flow, profit generation and capital position (i.e. the ability to withstand risks)
Two other reasons for regularly preparing and reviewing financial statements are:
- Error and fraud detection: Regular bank reconciliations and detailed reviews of actual results again budget can detect errors and be the first suspicion of many fraud.
- Process control: Many smaller companies can take a month or more to complete internal month end financial statements. What are the processes that cause this lack of speed and how does this affect your other non-financial processes?
Revenue is vanity, profits are sanity, but cash is king. Here are three reasons why a business owner should forecast cash flow: 1. Growth. A cash flow forecast allows your business to grow as quickly as you can afford to and prevents you from growing faster than your cash allows. 2. Control. Many things in your business are outside your control e.g. certain costs, regulations or taxes. However, you do have control over some matters such as the collection of accounts receivable which can greatly affect cash flow. 3. Course correction. A good cash flow forecast will allow you to make changes proactively if updated cash flow projections predict a slowdown.