How cash flow issues can be tamed with just a few steps

Cash flow issues are one of the big reasons businesses fail. And these types of problems are directly related to an owner not staying on top of the numbers and having poor accounting practices.

The good news is you don’t need a crystal ball to forecast what lies ahead for your company. By learning how to read a few financial reports, you’ll know where your company is headed.

Don’t worry — you don’t have to be a rocket scientist to understand them. Once you learn the basics, you’ll only need a few hours a month to get a handle on things. With that in mind, here are six financial reports you need to check every single month:

P&L (profit and loss statement)
Also called an income statement, the P&L shows revenue minus expenses and either your net profit or loss. I still read my company’s income statement every month because it gives me a quick snapshot of how each area of the business is performing.

Balance sheet
This simple document shows what your business is really worth. It lists all your assets and liabilities. In this statement you’ll see what you own, who you owe, and revenue owed to you.

Receivables report
This report shows who owes you money, how much they owe, and the age of their debt. You know how I feel about debt, so I advise not extending credit to anyone. If you feel you absolutely have to, keep it short-term — no more than 30 days.

Payables report
This is a quick summary of who you owe money to and the amount you have to pay. If you owe something, pay it! It’s never a good idea to hold your money until the last second. My company clears bills every Tuesday, and that allows us to negotiate further discounts and build incredible goodwill with suppliers and vendors.

Checkbook reconciliation
This is still the best way to verify that your bank account balance is correct and that there are no errors. If you’ve ever kept a checkbook register for your personal account, this one will be a breeze. It’s just a turbo-charged version of the one at home that shows the checks you’ve written, deposits and your balance.

Purchase orders
Simply put, this is a record of all your open purchase orders, including quantity. The PO is a simple way to quickly review what has been purchased and the cost of each item.

Set aside a few hours each month to read and address these financial reports. It’ll be one of the best investments you’ll ever make!