Review three core reports every month: the profit and loss statement, the balance sheet, and the cash flow statement. Add accounts receivable and payable aging, plus your bank reconciliations. If you collect sales tax, run payroll, or hold inventory, add those reports too.
That sounds like a lot. It isn’t. With clean books, the whole review takes an hour or two. With messy books, it takes forever, which is the real problem. Owners who skip reports usually aren’t lazy. They don’t trust the numbers. If that’s you, good bookkeeping services fix the trust issue first, and the reviewing gets easy after that.
It’s late October, so you have two months to get your books in shape before year-end. Start with these reports.
The Core Three Reports
1. Profit and Loss Statement
The profit and loss statement, also called the income statement, shows what came in, what went out, and what was left over during a period. Revenue at the top. Costs and expenses below. Net profit at the bottom.
Think of it as a video of your month. It tells you whether you made money, and where the money went. Look at gross margin first, then your largest expense lines. A single category that jumps 30% from last month deserves a phone call to whoever recorded it.
2. Balance Sheet
If the profit and loss is a video, the balance sheet is a photograph. It freezes one day and shows what you own (assets), what you owe (liabilities), and what’s left for you (equity). Cash, receivables, equipment, loans, credit card balances, and owner draws all land here.
What to Look at First
Start with cash, and check that it matches your bank. Then check your loan and credit card balances against statements. A balance sheet that doesn’t match reality is the clearest sign your books need work. Strange entries like a negative bank balance or a large “uncategorized” account point to errors.
3. Cash Flow Statement
Profit isn’t cash. A business can show $8,000 in profit and still be unable to make payroll, because customers haven’t paid yet or you bought a pile of inventory. The cash flow statement tracks money actually moving in and out, split into operations, investing, and financing.
Here’s an opinion some owners resist: if you only look at one report, don’t pick the profit and loss. Pick cash. Profitable companies close because they run out of it.
Reports That Show Who Owes You and Who You Owe
1. Accounts Receivable Aging
This report lists every unpaid customer invoice and sorts them by age: current, 30 days, 60 days, 90 days and over. It tells you where your cash is stuck. An invoice that’s 90 days old is much harder to collect than one that’s 10 days old, so the first week of the month is the time to follow up.
2. Accounts Payable Aging
Same idea, reversed. It lists what you owe vendors and when it’s due. Review it before you pay anything. You’ll avoid late fees, spot duplicate bills, and see whether you’re paying everyone on the same day for no reason. Timing payments to match your cash coming in is a quiet way to ease pressure.
3. Bank and Credit Card Reconciliations
A reconciliation matches your books to the bank or card statement, line by line, until the totals agree. It’s the foundation for every other report. Many bookkeeping services treat it as the first step of closing the month, and they’re right to.
Why Reconciliations Come First
If your cash balance is wrong, your profit, balance sheet, and cash flow all inherit the error. Reviewing a report built on an unreconciled account is like measuring a room with a bent tape measure. You’ll get numbers, just not true ones.
Reports for Specific Businesses
1. Sales Tax and Payroll Reports
If you sell taxable goods in California, your sales tax returns go to the CDTFA, and your books should match the totals you report. Employers also have quarterly payroll filings and state reports. A monthly look at your sales tax liability and payroll liability accounts catches mismatches early, before a deadline forces a scramble.
2. Inventory Reports
Retailers, restaurants, and online sellers need to know what’s on the shelf and what it cost. An inventory report shows quantities and values. Compare it to your physical count now and then. A gap points to theft, waste, or recording errors, and each one costs real money.
3. Job or Project Profitability
Contractors, agencies, and consultants should see profit by job, not just by month. One job can quietly lose money while the rest carry it. A job report shows revenue and costs for each project, so you can fix your pricing before the next quote goes out.
How to Review Them Without Losing a Weekend
1. Pick the Same Day Every Month
Choose a date, like the 15th, and block an hour on your calendar. Habit beats willpower. If reports aren’t ready by then, that tells you something is wrong with your process, and you should fix it. Waiting longer only makes each month heavier.
2. Compare to Last Month and Last Year
A single number tells you little. A trend tells you a lot. Put this month next to last month and the same month last year. Seasonal businesses especially need that last comparison, since December and July aren’t comparable.
Questions Worth Asking
- Did revenue move up or down, and do I know why?
- Which expense grew faster than sales?
- How much cash will I have in 60 days?
- Who owes me money that’s more than 30 days old?
- Is anything categorized as “miscellaneous” or “uncategorized”?
3. Write Down One Decision
Reports are useless if nothing changes. End every review with one decision: raise a price, chase two invoices, cancel a subscription, delay a purchase. Just one. Next month, check whether it worked.
Getting Help With the Numbers
1. When Bookkeeping Services Make Sense
If you’re behind on entries, dread opening your software, or can’t tell whether the numbers are right, hand it off. The cost of an outside bookkeeper is often lower than the hours you’d spend or the mistakes you’d pay for. Owners with payroll, sales tax, or several bank accounts usually reach this point sooner than they expect.
2. What Monthly Bookkeeping Services Should Deliver
Good monthly bookkeeping services should reconcile every account, categorize transactions, and send you the core reports on a regular schedule. They should also answer questions in plain English. If you get a pile of reports with no explanation, that’s a sign to ask for more. TT Tax and Business Services in Garden Grove has a bookkeeping team, and Kathy Nguyen, EA, handles the tax side, so your books and your return come from the same office.
3. Reports Your Tax Preparer Needs
At tax time, your preparer will ask for the year-end profit and loss, the balance sheet, and bank and credit card statements for all twelve months. Payroll reports and sales tax returns come next. Clean monthly reports mean you can hand these over in a day instead of a month.
Conclusion
A small business should review the profit and loss, balance sheet, and cash flow every month, plus receivables, payables, and reconciliations. Add sales tax, payroll, inventory, or job reports if they apply to you. Pick a date, compare against last month, and make one decision. If the numbers aren’t reliable enough to review, monthly bookkeeping services can get you there.
FAQs
1. What are the most important financial reports for a small business?
The profit and loss statement, balance sheet, and cash flow statement. Together they show whether you’re making money, what you own and owe, and where your cash is going.
2. How often should I review financial statements?
Monthly for the core reports. Check cash and receivables weekly if your business is busy, and look at balances every few days to catch odd charges.
3. What is the difference between profit and cash flow?
Profit is revenue minus expenses on paper. Cash flow is money actually moving in and out. A business can show profit and still be short on cash if customers pay late or inventory purchases are large.
4. What should I get from monthly bookkeeping services?
Reconciled accounts, categorized transactions, and the core financial reports on a set schedule. A good provider also explains what the numbers mean and flags problems, not just hands over spreadsheets.
5. Do I need a different set of reports if I sell products?
Yes. Add inventory and sales tax reports. Sellers should also compare gross margin by product, since a best-seller with a thin margin can hide a weak month.