Monthly review of financial statements is crucial for business owners, department heads, shareholders, and lending institutions. These reviews help stakeholders and decision-makers stay in control of business operations, spot problems early, and make better, more timely decisions.
Some businesses have the luxury of robust accounting and financial reporting departments. As a result, they can access a wider range of reports. However, at a minimum, a regular financial review should include the following statements:
Income Statement (Monthly)
This report summarizes the business’s operating results for the period under review. The period can be any time frame established by management (monthly, quarterly, annually, etc.). Ideally, it should be displayed as a trailing twelve-month
report, where the current month appears next to the previous eleven months.
report, where the current month appears next to the previous eleven months.
This format allows users to measure trends and ensure expenses are properly categorized and captured. In particular, the report helps measure:
- Revenue trends – Are they flat, growing, or declining?
- Proper expense recording – Are recurring expenses from previous months included in the current month?
- Net income or loss trends – Is the company making money, and how is that trending?
However, care must be taken when reviewing this statement. Income reported on
the Income Statement does not always translate into cash flow. That is measured
in the next financial statement.
the Income Statement does not always translate into cash flow. That is measured
in the next financial statement.
Cash Flow Statement (Monthly)
The Cash Flow Statement takes the net income or loss reported on the Income Statement and converts it into the change in cash for the period. In other words, it provides a snapshot of the company’s liquidity and its ability to meet
obligations.
It removes “paper profit” and shows the true cash impact of operations through
three main sections:
three main sections:
- Operating Activities – Shows core business performance by removing non-cash items such as depreciation and amortization.
- Investing Activities – Includes cash outflows for investments (such as securities, acquisitions, and equipment) and inflows from sales or maturities.
- Financing Activities – Includes proceeds from debt or stock issuance, as well as outflows for dividends, treasury stock purchases, and debt payments.
Ultimately, this statement bridges the gap between reported profit and actual
cash on hand, which connects directly to the Balance Sheet.
cash on hand, which connects directly to the Balance Sheet.
Balance Sheet (Monthly)
While the previous statements measure performance over time, the Balance Sheet provides a snapshot of the business at a specific point in time. It shows what the company owns versus what it owes.
Additionally, assets, liabilities, and equity can be compared to prior periods to measure changes over time.
The Balance Sheet consists of three main sections:
- Assets – Items the company owns, such as cash, receivables, inventory, and equipment
- Liabilities – Obligations such as payables, accrued expenses, and debt
- Equity – Ownership interests, including retained earnings and current-year income or loss
A properly prepared Balance Sheet will always show that assets equal the sum of liabilities and equity.
Typically, assets and liabilities are presented from most current to least current. Items expected to be used or settled within one year are considered current; all others are non-current.
As a result, financial users can gain valuable insight into the company’s health by using financial ratios, such as liquidity, solvency, leverage, and efficiency ratios.
Accounts Receivable & Accounts Payable Aging (Weekly/Monthly)
These reports should be reviewed at least monthly, if not more frequently. They help identify slow-paying customers, potential credit risks, and collection priorities.
For example, the Accounts Receivable Aging report can indicate when customer terms need adjustment or when shipping should be limited.
Similarly, the Accounts Payable Aging report helps prioritize vendor payments. It can also support decisions to delay payments when cash flow is tight.
Together, these reports highlight potential risks building within the business.
Bank and Credit Card Reconciliations (Monthly)
Cash is one of the most vulnerable areas for fraud. Therefore, monthly reconciliations, combined with strong internal controls, are essential.
Reconciliations help identify errors, duplicate charges, and unauthorized transactions. In addition, they ensure that Balance Sheet accounts align with financial institution records.
A lack of regular reconciliations often signals an environment where fraud or
misstatements can occur more easily.
Final Thoughts
A monthly financial statement review is essential for running a successful business. Not only must financial statements be accurate, but they must also be timely.
While outdated financials are better than none, their usefulness declines over time. As a result, problems may go unnoticed and worsen.
Although other reports can support decision-making, the ones outlined above are essential. Simply put, healthy businesses depend on them.
Jim Kennedy, CPA manages the accounting services function at Ahuja and Consulting providing bookkeeping and fractional Controller/CFO services to various sized clients in multiple industries. He previously has Controller and CFO responsibilities in public and private entities ranging from $2 million to $500 million in revenue primarily in the manufacturing, retail and SaaS environments. In addition, he has experience in FP&A reporting in a large, publicly held company along with over four year’s experience in a “Big 4” Accounting firm.
