3 Bookkeeping Reports to Read Each Month

Here are three key financial reports every business owner should review regularly and what to watch out for in each of them:

 

Balance Sheet

 

What it is: A snapshot of what your business owns (assets), what it owes (liabilities), and what’s left over for you as the owner (equity).

 

Why it matters: It shows your business's overall financial position at a specific time. This report helps you keep tabs on your cash balance, assess stability, and make informed decisions about future growth, funding, or risk.

 

Watch for these red flags:

• Your cash is going down, but you’re not sure where it’s going. A declining cash balance could point to overspending or hidden cash flow issues that need your attention.
• Debt keeps going up, but your income isn’t. Growing liabilities and debt without matching growth in revenue may indicate your business is overspending or relying too heavily on credit to make ends meet.
• Owner equity is shrinking or negative. If the equity in your company is dropping, it may suggest your business is losing value and may not be sustainable without changes.

Income Statement (Profit and Loss Statement)

 

What it is: A summary of your business’s income and expenses over a set time (monthly, quarterly, or annually), showing whether you made a profit or loss.

 

Why it matters: This report helps you understand if your business is making money and where it is going. The income statement is also a key report that can help with budgeting or investment decisions.

 

Watch for these red flags:

• Your profit is getting smaller. If you experience a drop in profits, it may indicate that your costs are rising faster than your prices. Rising costs can cut into your earnings.
• Operating expenses suddenly jump without a clear reason. An unexpected increase in expenses could indicate inefficiency, waste, or unplanned spending.
• Your sales are steady, but you’re losing money. This might mean your overhead is too high or you're underpricing your products or services.

 

Accounts Receivable Aging Report

 

What it is: A breakdown of who owes you money and how long their invoices have been unpaid, grouped into 30, 60, or 90+ day categories.

 

Why it matters: Timely payments keep your cash flow strong. This report helps you see if customers are paying on time, or if some might not.

 

Watch for these red flags:

• More customers are late, especially in the 60- or 90-day range. Late payments can throw a wrench into your cash flow, thus making it harder to cover expenses. Without consistent follow-up, invoices may go unpaid longer or not get paid.
• One customer owes a large chunk of your unpaid invoices. Relying too heavily on one customer puts your business at risk, especially if they delay or stop paying.