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How To Review Your Financial Reports Effectively

You just got your monthly financial reports from your accountant but you have no idea how to review them or what to even look out for.

We know that reviewing financial reports can seem overwhelming, but breaking it down into manageable steps can help. Here's a guide on what to look for and how to review your financial statements effectively:

1. Understand the Structure:

Begin by familiarizing yourself with the structure of the monthly financial reports provided by your accountant. Identify the key sections, such as the income statement, balance sheet, and cash flow statement, and understand the information presented in each section.

2. Verify Accuracy and Completeness:

Check the accuracy and completeness of the data in the reports. Ensure that all transactions are accurately recorded and categorized. Look for any missing or incomplete information that may impact the reliability of the reports.

3. Assess Revenue Performance:

Focus on the income statement to assess your business's revenue performance for the month. Compare the total revenue to previous months to identify any trends or fluctuations. Analyze the revenue generated from different sources or product lines to understand where your business is generating the most income.

4. Analyze Expenses:

Review the expenses section of the income statement to understand your business's spending patterns for the month. Identify any significant expenses and assess whether they are in line with your budget or expectations. Look for opportunities to reduce discretionary spending or cut unnecessary costs.

5. Evaluate Profitability:

Calculate your business's net profit for the month by subtracting total expenses from total revenue. Analyze the net profit margin to assess your business's profitability. Compare the net profit margin to previous months to track changes in profitability over time.

6. Monitor Cash Flow:

Examine the cash flow statement to monitor your business's cash inflows and outflows for the month. Analyze cash flow from operating activities, investing activities, and financing activities to understand how cash is being generated and used. Look for any cash flow problems or areas of concern that may need attention.

7. Check Liquidity Position:

Assess your business's liquidity position by reviewing the balance sheet. Look at metrics such as current assets, current liabilities, and working capital to determine your business's ability to meet short-term financial obligations. Ensure that you have sufficient liquidity to cover expenses and maintain financial stability.

8. Compare to Budget or Forecast:

Compare the actual financial results for the month to your budget or forecast to assess performance against expectations. Identify any variances or deviations from the budget and investigate the reasons behind them. Adjust your budget or forecast as needed based on the insights gained from the monthly reports.

9. Identify Trends and Patterns:

Look for trends and patterns in the monthly financial reports that may indicate areas of strength or weakness in your business. Identify recurring patterns or anomalies that may require further investigation or action. Use this information to make informed decisions and strategic adjustments to improve your business's financial performance.

10. Seek Professional Guidance:

If you encounter any challenges or have questions about interpreting the monthly financial reports, don't hesitate to seek guidance from your accountant or financial advisors like us. We can provide valuable insights and recommendations based on our expertise and help you navigate any financial issues or concerns. (Check out our services & fees here)

By following these steps, you can review your monthly financial reports effectively and gain valuable insights into your business's financial performance and position. Regular review and analysis of monthly financial reports are essential for making informed decisions and driving business success.

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