Financial Statements Data Review Quick Tips

Reviewing financial statements regularly is crucial for ensuring the financial health and success of your business. However, many entrepreneurs feel overwhelmed by the numbers and terminology.

At Loomis Reddick & Bishop | Business & Accounting Advisory Services, we want to make financial reviews simple and effective for you.

Here are our quick tips to help you review your financial statements with confidence.

1. Start with the Big Picture

Begin by understanding what each financial statement represents:

Balance Sheet: Snapshot of assets, liabilities, and equity.
Income Statement: Summary of revenues and expenses over time.
Cash Flow Statement: Tracks cash inflows and outflows.

Tip: Focus on overall trends, rather than getting lost in the details. Look for patterns in growth, profit margins, and cash flow over time.

2. Check for Consistency

Financial statements should align with each other. For example:

The net income on the income statement should match the net income on the cash flow statement (under operating activities).
Changes in equity on the balance sheet should reflect items from the income statement and any additional owner contributions or withdrawals.

Tip: If numbers don’t add up, investigate discrepancies immediately.

3. Analyze Key Metrics

Use financial ratios to gain deeper insights. Some important ones include:

Liquidity Ratios (e.g., Current Ratio): Measure your ability to pay short-term obligations.
Profitability Ratios (e.g., Net Profit Margin): Assess how efficiently your business generates profit.
Leverage Ratios (e.g., Debt-to-Equity Ratio): Evaluate your use of debt versus equity.

Tip: Regularly calculate and compare these ratios to track performance.

4. Monitor Cash Flow Closely

Cash flow is the lifeblood of your business. Look for:

Positive cash flow from operating activities.
Trends in cash used for investments.
Debt repayment or new loans under financing activities.

Tip: Ensure you have enough cash reserves to cover unexpected expenses or slow revenue periods.

5. Review Revenue and Expenses

Dive into the income statement to analyze:

Revenue Trends: Are sales increasing or declining?
Expense Categories: Are there areas where costs can be reduced?

Tip: Compare revenue and expense data against your budget and industry benchmarks.

6. Watch for Red Flags

Be alert to potential warning signs, such as:

Sudden drops in revenue.
Consistently negative cash flow.
Increasing debt levels without corresponding asset growth.

Tip: Address these issues promptly to avoid long-term financial problems.

7. Use Technology and Tools

Modern accounting software can simplify financial reviews by:

Automating calculations.
Generating detailed reports.
Providing real-time data updates.

Tip: Invest in software that integrates seamlessly with your accounting and tax processes.

8. Consult with Experts

Financial data can sometimes be complex and require expert analysis.

Auditors can ensure accuracy and compliance.
Accountants can help you interpret data and optimize performance.
Tax advisors can guide you on strategies to minimize liabilities.

Tip: Schedule regular check-ins with your financial advisors to stay ahead of potential challenges.

How We Can Help

At Loomis Reddick Bishop, we offer expert Accounting, Auditing & Tax Services designed to make financial management easier for you. Our services include:

Financial statement preparation and review.
Comprehensive audits for compliance and accuracy.
Tailored advice to help you make informed decisions.

With these quick tips and expert guidance, you can confidently review your financial statements and make smarter business decisions. Contact our Impact Team to get personalized assistance tailored to your specific needs.

Schedule A Free Consultation Now