A daily review of your Financial Statements is too frequent, while an annual review when taxes are filed will not help you. Neither do quarterly reviews help you manage your business to make more money.
The sweet spot for reviewing the results of your business actions through your financial statements is monthly. Your goal is to use the power of variance reports to confirm which actions are working, which aren’t, and what you need to do differently to realize your profit plan.
Overview
How often should I review my Financial Statements?
Any review of your Financial Statements is driven by the speed at which your financial statement data changes. For most businesses, a monthly review works well. Your goal is to examine your Financial Statements in a disciplined way each month. Ideally, they’re reviewed during the second management meeting of the month, along with the monthly KPI scorecard.
Every month, plan to generate the following financial reports from your accounting software:
- Monthly P&L Statement reporting current versus the same previous period.
- Monthly “Variance to Plan” report comparing actual versus profit plan.
- Month-end Balance Sheet.
Monthly reviews of the above reports give you a better appreciation of the relationship of your P&L Statement to your Balance Sheet. The P&L Statement shows you the details of why Retained Earnings, an important Equity account on your Balance Sheet, changed based on the Net Income results of your P&L Statement. Knowing this is how you build financial wealth by making sure money is spent on things that generate a return on your investments.