Follow Us On Social Media:

Financial business report trifecta blog image

The Financial Report Trifecta

There are three vital financial reports that business owners need to pay attention to in order to keep their business in balance.

Business owners have heard the terms “Budget” and “Forecast” many times, but they may not know they are different and best when used together. Owners can monitor and make adjustments to their business operations by implementing accurate monthly financial statements, annual budgets and monthly or quarterly forecasts. For startups, here is a quick rundown.

First: Financial Statements

It is important to produce monthly financial statements. These statements are the historical record of where your money came from and where it was spent. Business owners think it is only necessary to gather this information annually to prepare for your tax returns, but this data is needed to run your business operations. Ideally, an owner should view this information on an accrual basis for operational needs. Accrual basis recognizes revenue when it is earned and the related expenses to produce the product or service in the same period in which it is earned. This helps the owner determine exactly how much it costs to perform their service or produce their product. Studying this monthly historical data will present trends to the owner. However, it is also useful in alerting to problems and providing clues about a company’s strengths. If owners focus on any troublesome trends, they can make an immediate operational decision that counters a growing problem. If owners notice which customers or revenue streams are driving the highest profits, then solutions such as fine tuning marketing and sales teams to focus on these areas may yield big results.

Second: Budgets

A business should prepare an annual budget to understand what it is trying to accomplish in the coming year. Resources will be needed to achieve goals, and it is important to earmark funds that will be needed to hire additional labor, purchase capital equipment, and provide the infrastructure needed to support new growth. An owner can view a budget from a “top down” or a “bottoms up” approach. In a top down approach, senior management may provide a total budget that aligns with the corporate goals and assign the department to develop how it will best utilize those funds. In a bottoms up approach, each department would build a budget from scratch to accumulate the total amount needed to provide all goods/services for the full year. Whichever method is used, the most important lesson is that the senior management team should align the final budget with the overall corporate strategy for the year so there are no conflicting goals. For example, an IT department could be concerned about replacing employees computers every 3 years so there are no data failures. The company may be struggling with cash flow and need to trim this budget. The senior management would then communicate to the IT department during the budget process that they should repair as many PCs as possible rather than immediately replacing at the 3-year mark. 

Finally: Forecasts

This report is a monthly or quarterly estimate of how the business will perform. Forecasts usually start as the budget and is then updated each month with the actual historical data. The remaining months of the year are then adjusted to reflect estimates that are more in line with the current business performance. Forecasts are fluid and ever-changing. This is because every month, more information is gathered about what will happen in the near future. The further out the forecast is projected, the less reliable the data. This is due to unknown factors that cannot be predicted. For instance, if a business is manufacturing and selling widgets, there is probably a pretty good understanding of what the next 1-3 months of sales will be because orders have been acquired that need to be fulfilled for customers. If a natural catastrophe in month four of a forecast wipes out the most economical supply of widget parts, costs may go up or manufacturing could be delayed until a replacement supplier if found. This would require many changes to the forecast—for costs as well as new pricing for customers.

Businesses run on information. Business owners need to understand the information that is available to them and use it to plan and predict what comes next. If owners are not keeping their eyes on the road, they could become victims of their own success. If they are keeping their eyes on growth, they’ll be building out their infrastructure as they go so grand success doesn’t end in grand failure. If products or services can’t get out to customers in a timely and organized fashion, they could miss a chance at the best future. This is why it is so important to utilize financial statements, budgets and forecasts in order to keep a business in balance.


Jaime Davison, CPA, CGMA is the President & CFO of My Finance Resource. She is a CFO for hire specializing in healthcare, biotech start-ups. She has more than 20 years of success in heathcare, manufacturing, technology, and B2B service industries. She has worked with start-ups to Fortune 500 companies (Gannett, Quest Diagnostics).

Jaime Davison
jaime@myfinanceresource.com