Most business owners know they should look at their financial reports, but let’s be honest. For many people, reading financial statements sit in the same mental bucket as flossing and stretching. You know it is good for you, but somehow it keeps falling to the bottom of the list.
If you are running a business, your financial reports are not optional. They are your early warning system, your guideposts, and sometimes the only thing standing between you and a very unfun surprise.
Let’s walk through the three reports you should review every month.
1. The Profit and Loss Statement: Your Business Report Card
I want you to think of your P&L as the report card for the month. It shows what came in, what went out, and how much was left over. If the month was profitable, great. If it was not, at least you know and can make any needed adjustments.
A few things to check every time:
- Does the income make sense for the work you completed?
- Are expenses creeping up in areas that do not need to creep?
- Does your gross profit look healthy, or does something look off?
If a number makes you tilt your head and squint, that is a sign to dig deeper. Numbers do not fix themselves. Make sure first that your bookkeeping is accurate, if it is, the next step is to figure out what happened in your business.
Don’t assume that because you had a good month, the next month will magically follow suit. Think about how you’ll cover monthly expenses during a slow month, or during a slow season.
2. The Balance Sheet: The Part Everyone Wants to Skip
The balance sheet is the broccoli of financial statements. You might not love it, but it is important for you. It shows your assets, liabilities, and equity. In plain English: what you own, what you owe, and what the business is actually worth.
A few things to pay attention to:
- Bank balances should be healthy enough to meet your obligations.
- Credit card balances that might be quietly ballooning.
- Loans that make sense for where you are in your business plan.
- Any new asset and equipment purchases are listed.
- Owner distributions that could be draining your runway.
When the balance sheet looks strange, it usually means the P&L is also telling you an incomplete story. These two reports work together: The P&L shows income and expenses for a specific period of time, while the balance sheet shows the bigger picture.
3. The Cash Flow Report: The One That Tells the Truth
Your bank balance is not your cash flow. Your net profit is not your cash flow. I know it feels like it, but it isn’t. Cash flow tells you how money actually moved in and out of the business during the month. It shows timing issues, delayed customer payments, owner’s draws, debt payments.
If you are wondering why your P&L looks great but your bank account looks tired, the cash flow report explains it. Cash flow is honest. Sometimes painfully honest, but always helpful.
Look for:
- Debt payments – these won’t show up on your P&L, but have an impact on your cash flow.
- Large payments that hit all at once – this could expose issues in accounts receivable timing.
- Months where spending outpaced revenue.
- Owner’s draws that could be draining your runway.
If every month feels like a game of financial whack-a-mole, that is usually a cash flow problem, not always a revenue problem.
Why These 3 Reports Matter Together
Each report tells part of the story. The P&L shows your activity. The Balance Sheet shows your position. The Cash Flow Report shows your reality. When you look at all three together, you get a clear picture of how your business is truly performing.
Think of it like this. Your P&L is the selfie. Your Balance Sheet is the mirror. Your Cash Flow Report is your best friend telling you whether you actually look like that right now.
Final Thoughts
Reviewing your financial reports every month is not a punishment, it’s a tool in your financial toolbox. It is one of the simplest ways to stay ahead of issues before they snowball. And if something feels confusing or frustrating, that is normal. It just means you are ready for better support.
If you want help making sense of your numbers or putting a monthly review habit in place, that is exactly the kind of work my firm handles every day.