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Understanding Key Reports to make Better Decisions

Understanding Key Reports to make Better Decisions

balance sheet business cashflow profit and loss reporting May 01, 2023

You don’t have to be an accountant or bookkeeper to understand your numbers, just as you don’t have to be a mechanic to drive a car.  Having an overall understanding of your financial reports puts you in a far stronger position to make better decisions.

Before I start I thought I’d share a thought for the session - “The budget is not just a collection of numbers, but an expression of our values and aspirations”.

Your budget expresses your aspirations for the business over the next 12 months.  Now it’s time to make sure you can understand, monitor, and measure what you’ve set in those budgets and forecasts.

This blog is about demystifying the most common reports you’ll be seeing on a weekly, monthly, quarterly, and annual basis so that you’re in control of your business performance


Profit and Loss Statement


  • Tracks overall performance of the business
  • Matches income and expenses for a given period
  • Provides a framework o benchmark results
  • A fundamental driver of business value

Your Profit & Loss, also known as an Income Statement, shows all your earnings and costs over the year, and tracks the overall performance of your business.  It matches your income and expenses for the period, with adjustments made for timing differences, for example, sales that have been made but money hasn’t been received for yet.

It’s important to remember that profit is NOT the same as cash.  The profit shown in your Profit & Loss Statement includes non-cash expenses, such as depreciation.  You must ensure you have sufficient profit to cover cash costs, such as loan principal repayments, asset purchases, and drawings.

Your Profit & Loss Statement provides a framework to benchmark your results by using percentages or comparisons between years to compare your business performance to similar businesses.

Businesses are generally valued using a multiplier of earnings, so your Profit & Loss Statement is a fundamental driver of the value of your business.  The higher your earnings, the higher your value.


Balance Sheet


  • Measures the ‘net worth’ of the business at a point in time
  • Shows if your business is solvent
  • Comparisons between periods possible
  • Useful for tracking ‘strength’ of the business
  • A basis for calculating key ratios

Your Balance Sheet, also known as a Statement of Financial Position, provides a snapshot of your business’s financial position at a specific point in time.

It measures the net worth of your business, which is your assets less your liabilities.  It also shows if your business is solvent; if your liabilities are greater than your assets then the business is insolvent and urgent action is needed to fix this.

You can compare different periods to determine whether the business’s net worth is increasing or decreasing between years and can track the strength of the business.  The stronger your Balance Sheet, the easier it will be for your business to survive a downturn.

It also provides a basis to calculate key ratios, such as debtor days and inventory days.


Statement of Changes in Equity


  • Shoes if profits are paid out as dividends or retained
  • Captures the value of the business – assets less liabilities
  • Shows if the company is solvent

The Statement of Changes in Equity shows what happens to the profits.  They could be paid out as dividends or kept in the business as retained earnings.

It represents the net worth, or value, of the company and is a key indicator of the company’s financial health.

It shows whether a company is solvent.  Remember, if the company has more liabilities than assets, it’s insolvent, and funds will need to be paid into the company.


Shareholder Current Account


  • A running record of funds introduced and taken from the business by shareholders
  • A way of monitoring personal expenditure made from the business
  • Ensures a record of different balances for each shareholder is maintained
  • Shows what’s owed to each shareholder by the business (or if overdrawn, how much the shareholder owes the Company)

The Shareholder Current Account records all funds introduced to the business by shareholders or taken out of the business as drawings. 

It can help you monitor your personal expenditure from the business, and for businesses with more than one shareholder, it maintains a balance of the amount each shareholder has introduced or withdrawn from the business.

It shows how much the business owes to each shareholder.  If the account is overdrawn, it means the shareholder has taken out more than they’ve put in and now owes the company money.  To put the account back into a positive balance, the shareholder can repay the loan, or the company can increase it’s profit to pay a shareholder salary, or a dividend can be declared.

If your Shareholder Current Account is overdrawn, it’s important to get advice from your accountant as soon as possible to discuss the best options for you and your business


Your Next Steps


I hope this helps in giving you a high level overview of these reports and what they mean. I'm passionate about helping my clients understand their numbers and interpreting their results - the numbers tell the story of your business. 

May aim is to help you take what you've learnt today and implement some positive change in your business. Now its time for you to decide what you're going to do. What problems are you experiencing in your business? Identify these problems and use them as an opportunity to create a project to fix them. 

Of course, we can create your Management Reports each month, catching up with you to review them monthly so we can discuss potential areas for improvement.  And finally, we offer a complimentary 30 minute brainstorming session get in touch with me to book it in on [email protected].


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