Top Ways to Track Your Small Business Financials

4 min read · 4 weeks ago


Keeping up with small business financials can be stressful. You want to be conscientious, but getting a true sense of your finances is tough with so many moving pieces. Understanding the different ways of monitoring and reporting small business financials can help.

Being the most organized business owner on the planet won’t matter much if you don’t know how to do your financial reporting. If you’re starting without a finance expert on your team, you could easily be overwhelmed by the various options for tracking small business financials.

Yet, you can’t let this slide. No matter your industry or size, your business needs to complete and consistently update financial statements to:

  • Understand your business
  • Make better decisions
  • Secure loans and investment
  • Benchmark progress
  • Prepare taxes
  • Comply with audits
  • Anticipate cash flow difficulties

Notice we said update financial statements. Yes, statements are plural. This article will outline some of the main ways to keep track of your small business financials:

  • Current balance sheet
  • Income statement
  • Cash flow statement  
  • Accounts receivable report
  • Accounts receivable versus accounts payable days report


Current Balance Sheet

Current Balance Sheet

To visualize a balance sheet, you might think of the dashboard you see when you log into your online bank account. If you have more than one account, it will list the balances in each of those accounts. Maybe you have a bank credit card or loan, so the amount you owe on those is visible too.

The balance sheet, similarly, captures your assets, liabilities, and equity in a broad overview. A solo entrepreneur selling personalized wedding favors might only report money in the business bank account (assets) and the amount she owes to the supplier of the favors (liabilities). Equity is the assets minus liabilities. But, in this example, there are more aspects to consider for a larger business with the equipment involved.


Income Statement

If the balance sheet provides the dashboard, high-level view, the income statement is the equivalent of the transaction ledger on your online banking site. This is where you get line-by-line information about factors such as:

  • Revenue
  • Cost of goods sold
  • Operating expenses such as:
  • Utilities
  • Internet
  • Rent
  • Website hosting

Also known as the profit and loss statement (P&L), this detailed reporting helps you project upcoming sales and expenses to understand profitability. Put simply: gross profit – total operating expenses = net profit. Note, gross profit is revenue – cost of goods sold. 

Freshbooks offers a Sample Balance Sheet and Income Statement for Small Business in its resources.


Cash Flow Statement  

This is a critical statement for getting a picture of where your business stands financially right now. The cash flow statement (CFS) helps you see “how much money is coming in and how much is going out?” Obviously, the success of your small business could rest on knowing the answer. 

The CFS paints a picture in numbers of your business liquidity. Investors and lenders are going to be keen to see this one. The statement shows:

  • cash from operating activities (e.g., from business transactions or selling inventory and supplies as well as for paying employee salaries) 
  • cash from investing activities (this might include asset purchases and sales, interest payments from loans, or payments related to mergers or acquisitions)
  • cash from financing activities (maybe you raise money from stock or debt or owe lenders or other creditors)


Accounts Receivable Aging Report

This one doesn’t always make the top list, but effective accounts receivables (AR) management helps your cash flow. An AR aging report lists customers with outstanding payments by the length of time overdue. If you’re using accounting software, running this report should be straightforward. In QuickBooks, for example, you select the report in the “Who Owes You” section and can customize it as needed.

Running this report will help your business identify customers who are slow to pay or delinquent. You can then take action to ensure they pay up or that you no longer provide them with products or services.


Accounts Receivable Versus Accounts Payable Days Report

This report is another way of getting a view of your cash flow. You’ll take stock of the average number of days it takes to get paid and compare it with the number of days it takes your business to pay its vendors. 

You might not run this AR to AP days report regularly, but know that it is a useful one to run to understand your liquidity better. If you have a poor AR to AP days ratio, you may want to change the payment terms for your customers or work with your vendors to shift invoice timing.


The Importance of Small Business Financials 

The Importance of Small Business Financials

Your business idea may be the best one ever, but you could still fail if you don’t have financial awareness. These statements and reports document small business financials for both internal and external stakeholders. This is how you get a true idea of your current financial situation to make better operational decisions, track goals, and calculate your business health.