Whether your business is doing $5,000 or $5,000,000 in MRR, you need to review your financials on a monthly basis.

Too often, I see SMBs revisit their books just a few times per year, and some don’t even do it regularly.

At the same time, many owners would like to institute monthly financial reviews for their businesses, but they aren’t sure where to start.

So this week, I’ll be providing a simple framework to assess performance, review goals & forecasts, and identify any adjustments needed to stay on track.

Why You Need a Monthly Financial Review

In order to run your business well, you need to know where you stand, how you got there, and where you’re headed over time.

Answering these questions requires a systematic analysis of current & historical performance, adherence to stated goals, and the decisions that drive growth.

This can only be done by compiling key financial information into one place.

At a high level, these monthly reviews keep the business focused on its long-term success, rather than putting out fires as they crop up.

They do this by setting aside time for leadership to track progress over various timeframes, which in turn generates a wealth of insights into how the business creates value.

Tactically, these reviews also motivate improved internal performance by keeping teams in the loop about the company’s financial position, while also calling out activities that no longer serve the business.

Components of the Review Process

To get started, you need the following.

1. At least 3-5 financial KPIs.

2. A formalized accounting process.

3. Core reporting, compiled into a single source.

At least 3-5 financial KPIs.

These should be both specific to your business and easy to track consistently with the data that you have on hand. More on that here.

You should refer back to these, as well as your agreed-upon goals for the year, at the beginning of each review meeting.

A formalized accounting process.

Before you dive into the reporting to understand how you performed and why, you’ll need to set clear expectations with your accounting team around how financial statements are to be prepared, the timeline for their delivery, and how they’ll be checked from an accounting standpoint before the review meeting.

Once you have your process working, best practice is to ask for the core statements to be emailed to you by the 15th of every month.

You’ll want to view these statements in terms of YTD and MoM performance with % increases shown in the adjacent columns. This format will allow you to quickly identify which line items need your attention.

If you don’t have an accountant or bookkeeper, now is the time to bring one on board. One of the easiest ways to do this is by working with a fractional accounting or CFO firm.

They’ll work with you to properly close the books each month, generate budgets, and generate the reports you need to operate effectively.

Core reporting, compiled into a single source.

This includes the cash flow statement, balance sheet, and income statement.

If you’re just getting started with monthly financial reviews, you’ll use these statements as the basis for comparing budgeted to actual performance.

The cash flow statement will tell you what’s on hand to pay down debt and manage ongoing expenses. It’ll also help you identify opportunities to generate new revenue or reduce overhead. It should also get you thinking about what you can do to shorten cash conversion cycles. More on that here.

High-growth businesses should also pay special attention to their runway here.

The balance sheet allows you to quickly assess your business’s capital structure and generate critical ratios. This statement can also help you identify any cash shortfalls that may need to be addressed over the coming 6-12 months.

The income statement tells you how much cash your business keeps after paying its expenses. Reviewing this monthly allows you to control costs and protect margins. As you review this statement, look for opportunities to increase profitability and prioritize each of them by impact and ease of implementation.

Finally, you might want to look deeper into your revenue sources to be sure that your offerings are still well-positioned relative to your competitors. Course correcting at this stage—or doubling down on what’s already working—can help you boost sales and profitability.

How to Conduct Monthly Financial Reviews

The culmination of this process should be a formal meeting in which you review the previous month’s financials in context—even if you are the sole attendee.

But there are a few steps I recommend taking beforehand.

First, meet with your accounting team to better understand how they produced this most recent set of financials. Determine whether or not any uncategorized transactions were moved into a cleaning bucket. Then ask if there were any issues that took more time than normal to be reconciled this time around.

Once you’ve cleared up any accounting issues, review the income statement in detail. Start by looking for any columns with more than a 5% monthly variance.

You should also monitor the following on a 12-month basis. Doing so allows you to identify trends, plan for seasonality, and make any adjustments.

• Revenue

• Gross margin

• COGS

• Cost of customer acquisition

• Operating expenses by department

• Net margin

When you meet with your team, ask whoever owns each high-variance line item to explain in detail. If they do not have a good answer to this, either more transparency or an additional review of the bookkeeping is needed.

The goal is to arrive at a detailed explanation for each significant variance, as well as an action plan to reverse any concerning trends.

Next, check your balance sheet to assess your trending cash balance, A/R as a % of revenue and A/P, and A/P as a % of revenue and expenses. You’ll also need to ensure that all debts are properly accounted for.

Once you’ve discussed any critical insights generated from reviewing your cash flow statement, close by considering a few questions with your team.

• What is the long-term strategy of the company, and what are you doing as a team to get there? What changes need to be made?

• What is the best allocation of resources to grow revenue? Is this the time to make any hires? If so, which ones?

• Is the budget healthy? If not, what’s pushing you over budget? Are there surpluses in another area of the business that can be redeployed?

Putting It All Together

Here are your top takeaways from this week’s post.

1. All businesses should be reviewing their financials on a monthly basis.

2. To get started, you need to select 3-5 financial KPIs. They should be easy to track over time and drive your business forward. Review each of them, as well as your annual objectives, at the beginning of each meeting.

3. Once you’ve selected your KPIs, work with your accounting department to formalize a reporting process that works for the business. From there, you can review the cash flow statement, balance sheet, and income statement ahead of the formal meeting.

4. The goal of your review meeting is to identify notable trends and variances. Each of them should then be researched and actioned on as appropriate.

5. Close each meeting by reflecting on the company’s broader goals and how current and historical performance support those goals. If this part of the discussion fails to inspire confidence, consider course correcting.

Hungry for More?

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3. Shoot me an email with your questions or requests for what you’d like me to write about next.

‘Til Next Time,

Connor