“Cash is the lifeblood of business, which makes receivables the heart that pumps the blood.”


“Even if you have an accountant, as a small-business owner you still need to be knee-deep in financials.Even if you’re not a CFO—or a numbers person—you should still review your company’s financial reports every month. When you’re reviewing, you need to look for profitability by project, overall profitability and trends, proper classification of revenue and expenses, cash flow and fraud—but that’s just an overview. Here’s what you need to do, step by step.
1. Make sure you have the systems and process in place to create solid monthly financial reports.

Make sure your accounting system is set up properly. This needs to be done before you can start your review. I set up my system so that you can track profitability by project. In some systems, this is called “classes,” where revenue and directly-related expenses tied to a particular project are put into its respective class. For example, my company may produce an email newsletter, a magazine and an event for one client. Each of those projects will be a separate class.

Before you review the monthly financial reports, have your bookkeeper reconcile your records to your bank statements. This ensures that all cash transactions from the month (as shown on the bank statements) are recorded in the accounting system. (By the way, I am always the one to open bank statements or review them online. This is a very simple check against fraud, as I review the checks and other disbursements.)
2. Once your system is set up, start with reviewing the monthly income report (also known as profit and loss report) by class.

This enables you to see the profit and loss for each project. When reviewing this, ask yourself:

  • Have we included all the projects and have we invoiced them on a timely basis? (It is very important that invoices are entered and sent to clients often—I like to send them as soon as our client agreement calls for them—and that bills are entered every two weeks or more frequently. Sending out invoices late usually means you will be paid late. And if you don’t enter your bills on a timely basis, you may not have a good picture of your upcoming cash needs.)
  • Have we included all the appropriate expenses associated with each project? (This includes checking to see that expenses are assigned to the right project or class as opposed to being in the unclassified column.)
  • Is the profit of the project consistent with the budget? If not, why? If something isn’t right with any of the above, investigate and find the source of the problem. If you are spending too much money, speak with the person who has control over the expense and find out why.

3. Then review the monthly income report as a whole.

Here you should look for:

  • Whether or not the overhead expenses (expenses not tied to a particular project and therefore unclassified) are consistent with last month. When first reviewing this, compare the report to the prior month. After a while, you will eventually have a feel for the numbers and you won’t always need to compare to the prior month. If overhead expenses are higher than the previous month, I will look into this further.
  • Is the overall company profit for the month consistent with budget? If not, is it because we are missing our revenue targets or because we are spending more money than planned?

4. Review the aging report. 

Cash is the lifeblood of business, which makes receivables the heart that pumps the blood. The aging report, which shows your receivables by due date, will show you how old each receivable is. When volume is up, you should check the aging report as much as once a week. If a receivable is past due, make sure the client is called as soon as possible to find out why.”

Read the rest of the article by American Express on OPEN Forum by Robert Levin,  CEO of RSL Media here: http://ow.ly/MnME9

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