Why Successful Businesses Review Their Numbers Every Month

Many business owners only look closely at their finances when their accountant asks for records at the end of the year.

By then, the opportunity to make meaningful changes may have passed.

Annual accounts are important, but they are primarily a record of what has already happened. They may show that profit margins fell, overheads increased or customers took longer to pay, but they cannot recover the decisions that could have been made several months earlier.

Successful businesses do not wait until year-end to understand their financial performance.

They review their numbers regularly, identify trends early and make decisions using current information rather than relying on assumptions or the balance showing in their bank account.

Monthly financial reviews are not only for large organisations. They are one of the most useful habits that small and owner-managed businesses can adopt to improve profitability, protect cash flow and plan for growth.

The short answer

Reviewing your business finances every month can help you:

• Identify problems before they become expensive
• Improve cash-flow management
• Monitor profitability
• Control unnecessary spending
• Plan for tax liabilities
• Follow up overdue customer invoices
• Compare actual results with budgets
• Measure progress against business goals
• Make better-informed decisions
• Identify opportunities for growth

A short, focused review every month is often more useful than one large review after the financial year has ended.

The purpose is not to produce more paperwork.

It is to give business owners the information they need while there is still time to act.

Why monthly financial reviews matter

Running a business without reviewing its numbers is similar to driving without looking at the dashboard.

You might continue moving, but you will not know:

• How quickly you are travelling
• How much fuel remains
• Whether the engine is overheating
• Whether a warning light requires attention
• Whether you are still heading in the right direction

Your financial reports perform a similar role.

They show whether the business is progressing as expected and highlight areas that may require attention.

Regular financial and management accounts can provide current information about profitability, cash flow, customer debts, supplier liabilities, budgets and forecasts.

Annual accounts and management accounts serve different purposes

Annual accounts provide an important summary of a company’s financial performance and position.

They are also required for statutory reporting and tax purposes.

However, annual accounts are often prepared several months after the end of the relevant financial year. This makes them useful for compliance and historical review, but less useful for immediate decision-making.

Management accounts are prepared during the year for the benefit of the business owners and managers.

They may include:

• A profit and loss account
• A balance sheet
• A cash-flow report
• An aged debtors report
• An aged creditors report
• Budget comparisons
• Sales analysis
• Gross-profit margins
• Departmental results
• Project profitability
• Key performance indicators

Management accounts do not replace annual accounts.

They provide more regular information so that business owners can make decisions before problems or opportunities become visible in the year-end figures.

Understand how much the business is really earning

Turnover alone does not show whether a business is successful.

A company can increase its sales while making less profit.

This may happen where:

• Supplier prices have increased
• Staff costs have risen
• Jobs take longer to complete
• Discounts have become too generous
• Prices have not been reviewed
• Overheads have increased
• Low-margin work has replaced more profitable work
• Material waste or rework has increased
• Customers require more support than expected

A monthly profit and loss report helps show whether additional sales are producing additional profit.

Questions to ask include:

• How much revenue did the business generate?
• What did it cost to generate that revenue?
• What was the gross profit?
• What was the gross-profit percentage?
• What overheads were incurred?
• What was the operating profit?
• How does this compare with last month?
• How does it compare with the same month last year?
• How does it compare with the budget?

One unusual month may not be a concern.

A consistent decline over several months is more likely to indicate that action is required.

Know where the money is going

Every month, business owners should understand:

• How much was invoiced
• How much cash was collected
• What the largest expenses were
• Which costs increased
• Which suppliers were paid
• What customers still owe
• What tax liabilities are building
• How much cash the business is likely to need

Reviewing these areas consistently builds a much stronger understanding of how the business operates.

It also makes unexpected transactions easier to identify.

For example, a monthly expense review may reveal:

• Duplicate software subscriptions
• Supplier price increases
• Unused services
• Unexpected banking charges
• Excessive staff expenses
• Personal costs recorded through the business
• Contracts that are no longer required
• Purchases that were coded incorrectly

Not every increasing cost needs to be reduced.

Some expenditure supports growth, improves service or saves time elsewhere. The purpose of the review is to establish whether the business continues to receive sufficient value from the cost.

Understand the difference between profit and cash

One of the most common mistakes business owners make is assuming that the balance in the bank account represents profit.

It does not.

A profitable business can experience cash-flow pressure because:

• Customers have not paid their invoices
• Stock has been purchased
• Equipment has been bought
• Loan repayments have been made
• VAT is due
• Corporation Tax has not yet been paid
• Directors have withdrawn money
• Suppliers are being paid faster than customers pay the business

The opposite can also happen.

A business may have a healthy bank balance while making a loss because it has recently received:

• A loan
• An investment
• An advance payment from a customer
• Funds introduced by a director
• A VAT repayment
• Proceeds from selling an asset

A monthly financial review should therefore examine both profitability and cash.

Merranti’s guide to cash-flow analysis explains how the timing of money entering and leaving a business can affect its ability to meet financial commitments.

Identify cash-flow problems early

Cash-flow problems often produce warning signs before the business reaches a crisis.

These signs may include:

• Customers taking longer to pay
• Supplier balances increasing
• Regular use of an overdraft
• VAT or PAYE being paid late
• Directors delaying their own pay
• Increasing credit-card balances
• Stock increasing faster than sales
• Large future costs without sufficient reserves
• Customers asking for longer payment terms
• Profit increasing while available cash falls

A monthly review gives the business time to respond.

Possible actions may include:

• Contacting overdue customers
• Requesting deposits before work begins
• Changing customer payment terms
• Introducing staged billing
• Renegotiating supplier arrangements
• Delaying non-essential spending
• Reviewing stock purchasing
• Arranging finance before cash becomes critical
• Updating the cash-flow forecast
• Building a cash reserve

Waiting until the bank account is nearly empty can severely limit the options available.

Review overdue customer invoices

A business can report strong sales while struggling to collect the money it is owed.

An aged debtors report shows:

• Which customers owe money
• How much each customer owes
• How long invoices have been outstanding
• Which invoices are overdue
• Whether one customer represents a significant risk

The report should lead to action.

Ask:

• Have all completed jobs been invoiced?
• Were invoices sent to the correct contact?
• Are any invoices being disputed?
• Have overdue customers been contacted?
• Should further work be paused?
• Are the payment terms appropriate?
• Is too much revenue dependent on one customer?
• Should deposits or Direct Debits be introduced?

A sale may increase reported revenue, but it does not support cash flow until the customer pays.

Monitor gross-profit margins

Gross profit is the difference between sales and the direct costs of delivering the product or service.

Reviewing the gross-profit percentage can help identify whether:

• Prices remain appropriate
• Supplier costs have increased
• Labour is being used efficiently
• Jobs are being estimated correctly
• Discounts are reducing profitability
• Material waste is increasing
• The mix of work has changed
• Particular services are underperforming

This is especially important for:

• Construction businesses
• Retailers
• Hospitality businesses
• Engineering companies
• Manufacturers
• Professional service firms
• Project-based businesses

An overall profit figure may hide an unprofitable product, service, customer or project.

Monthly reporting can help separate:

• Profitable and unprofitable services
• High- and low-margin customers
• Efficient and inefficient projects
• Recurring and one-off revenue
• Core performance and exceptional income

Compare actual results with the budget

A budget shows what the business expected to happen.

Monthly reporting shows what actually happened.

The difference is known as a variance.

Useful comparisons include:

• Actual sales against budgeted sales
• Actual payroll against budget
• Marketing expenditure against budget
• Gross profit against target
• Overheads against expectations
• Cash balances against forecast
• Project costs against quotations

A variance is not automatically negative.

Sales may be higher because the business won an unexpected contract. Marketing expenditure may be higher because the directors approved a new campaign.

The important questions are:

• Why did the difference occur?
• Is it temporary or likely to continue?
• Does the budget need to be updated?
• Does the business need to take action?

A budget should be a working management tool, not a document prepared once and then ignored.

Plan for tax liabilities

Tax payments can cause significant cash-flow pressure when they are not anticipated.

A monthly review can help businesses monitor:

• Corporation Tax
• VAT
• PAYE
• National Insurance
• Construction Industry Scheme deductions
• Benefits in kind
• Self Assessment liabilities
• Dividend-tax consequences for shareholders

Tax liabilities are not always obvious from the bank balance.

Money collected from customers may include VAT that will later need to be paid to HMRC. A profitable company may also be building a Corporation Tax liability throughout the year.

Reviewing the position each month allows the business to set money aside gradually.

It may also create an opportunity to discuss legitimate tax-planning decisions before the company’s year end, while there is still time to take action.

Make better recruitment decisions

Hiring an employee creates more than a salary cost.

The business may also need to pay for:

• Employer’s National Insurance
• Pension contributions
• Holiday pay
• Sick pay
• Recruitment fees
• Training
• Equipment
• Software licences
• Insurance
• Additional supervision and management

Current financial information can help a business determine:

• Whether it can afford the complete employment cost
• How much additional revenue the employee needs to generate
• Whether the role should be permanent or temporary
• When the employee should start
• Whether sufficient cash is available during the recruitment period
• How long the business can support the cost before additional income is generated

Without current information, recruitment decisions may be based on an optimistic view of the bank balance rather than the company’s actual financial position.

Decide whether prices need to change

Many businesses review supplier prices but fail to review their own charges.

Monthly figures can show whether:

• Gross margins are declining
• Staff time is being undercharged
• Material-price increases have not been passed on
• Fixed-price contracts remain viable
• Particular customers require excessive support
• Discounts are being used too frequently
• Services are priced inconsistently

Prices should not necessarily be increased because one month was less profitable.

However, a sustained reduction in margins may indicate that the current pricing structure is no longer commercially viable.

Regular reporting gives the business evidence to support pricing decisions rather than relying on instinct.

Measure business growth properly

Growth is not always as straightforward as increasing turnover.

A business may increase revenue while also increasing:

• Debt
• Staff costs
• Customer concentration
• Stock holdings
• Tax liabilities
• Working hours
• Financial risk

Monthly reporting can help the business compare:

• Revenue
• Gross profit
• Operating profit
• Expenses
• Cash flow
• Customer numbers
• Average customer value
• Average job value
• Recurring revenue
• Debtor days
• Revenue per employee

These comparisons help determine whether the business is becoming larger, more profitable, more efficient or simply more complicated.

Ask better business questions

Regular reporting allows business owners to ask more useful questions.

For example:

• Which services produce the highest profit?
• Which customers pay most quickly?
• Which customers require the most time?
• Which expenses could be reduced?
• Which suppliers have increased their prices?
• Are our prices still appropriate?
• Are employees being used efficiently?
• Which marketing activity generates worthwhile sales?
• Are we meeting our targets?
• Can the business afford its growth plans?
• Where is cash becoming tied up?
• What is likely to happen over the next three months?

The value of management information is not only in the reports themselves.

It is in the questions and actions that follow.

What reports should be reviewed every month?

The appropriate reporting package will depend on the size and complexity of the business.

A useful starting point may include the following.

Profit and loss account

This shows income, direct costs, overheads and profit for the period.

It can help identify changing margins and unusual expenditure.

Balance sheet

This shows what the business owns, what it owes and its overall financial position.

It may reveal:

• Overdue taxes
• Increasing borrowing
• Large director’s loan balances
• Growing stock
• Falling cash reserves
• Significant customer debts

Cash-flow report or forecast

This shows how cash has moved and whether the business is likely to have enough money to meet future commitments.

Aged debtors report

This shows customers who owe the business money and how long the balances have been outstanding.

Aged creditors report

This shows the amounts owed to suppliers and when they are likely to require payment.

Budget-versus-actual report

This compares the expected result with what actually happened.

Key performance indicators

Useful indicators might include:

• Gross-profit percentage
• Revenue per employee
• Average customer value
• Average job value
• Debtor days
• Stock turnover
• Recurring revenue
• Staff utilisation
• Project profitability
• Customer acquisition cost

A business does not need dozens of performance indicators.

It needs a manageable number of measures that relate directly to its goals.

A practical monthly review process

A monthly financial review could follow this structure:

1. Confirm that the bookkeeping is complete.
2. Reconcile all business bank accounts.
3. Review sales and revenue.
4. Review gross profit and margins.
5. Examine overheads and unusual expenditure.
6. Compare actual results with the budget.
7. Review overdue customer invoices.
8. Check amounts owed to suppliers.
9. Review VAT, PAYE and tax provisions.
10. Update the cash-flow forecast.
11. Identify decisions that need to be made.
12. Assign actions and deadlines.
13. Review the actions agreed in the previous month.

The meeting should end with specific actions rather than general observations.

For example:

• Contact five overdue customers by Friday.
• Review the price of a low-margin service.
• Cancel unused software subscriptions.
• Update the six-month cash-flow forecast.
• Obtain finance quotations before buying equipment.
• Set aside additional money for Corporation Tax.
• Investigate why one project exceeded its budget.
• Review whether a new employee remains affordable.

Accurate bookkeeping is essential

Financial reports are only useful when the underlying bookkeeping is complete and accurate.

Common issues include:

• Missing sales invoices
• Unreconciled bank accounts
• Duplicate expenses
• Personal costs included in company records
• Payments allocated to the wrong supplier
• VAT recorded incorrectly
• Loan repayments treated as expenses
• Director withdrawals recorded incorrectly
• Transactions left in suspense accounts
• Customer payments not allocated to invoices

Poor bookkeeping can produce misleading management reports.

A business may appear profitable because costs are missing. It may appear to have substantial customer debts because receipts have not been matched correctly.

Regular bookkeeping helps ensure that management information is based on reliable data.

Using suitable accounting software and workflows can also make it easier to produce timely reports, monitor key performance indicators and maintain accurate financial records.

Common mistakes businesses make

Only reviewing the figures once a year

By the time annual accounts are prepared, some problems may have existed for many months.

Focusing only on the bank balance

The bank balance does not show profitability, unpaid customer invoices, supplier liabilities or future tax payments.

Looking at turnover without reviewing profit

Higher sales do not necessarily mean better financial performance.

Ignoring the balance sheet

The profit and loss account is important, but the balance sheet may reveal increasing debts, unpaid taxes or money owed by directors.

Preparing reports without taking action

Management information has limited value if it does not influence decisions.

Using incomplete bookkeeping

Reports generated from missing or incorrectly coded transactions may be misleading.

Tracking too many numbers

A long report containing irrelevant statistics can distract attention from the figures that actually matter.

Ignoring seasonal patterns

Some businesses naturally experience significant monthly variations.

Comparing the current month with the same month in the previous year may sometimes provide a more meaningful result.

Waiting until year-end to speak to the accountant

By the time the annual accounts are completed, some tax-planning and commercial opportunities may no longer be available.

Do small businesses need management accounts?

Small businesses can benefit from management information, but the reporting should be proportionate.

A small business with predictable transactions may only need:

• Up-to-date bookkeeping
• A monthly profit and loss report
• A bank reconciliation
• An aged debtors report
• A simple cash-flow forecast

A larger, faster-growing or more complex business may require:

• Full monthly management accounts
• Departmental reporting
• Detailed budgets
• Rolling forecasts
• Project analysis
• Board reporting
• Key performance indicators
• Commentary from an accountant or finance director

The purpose is not to produce the largest reporting pack.

It is to provide enough reliable information to support the decisions the business needs to make.

Frequently asked questions

How often should I review my business finances?

Most businesses benefit from reviewing their financial performance every month.

Businesses experiencing rapid growth, cash-flow pressure or high transaction volumes may need to review certain information weekly.

Is my bank balance enough?

No.

Your bank balance does not show profitability, outstanding customer invoices, supplier liabilities or future tax payments.

What reports should I review?

A useful starting point includes:

• Profit and loss account
• Balance sheet
• Cash-flow report
• Aged debtors report
• Aged creditors report
• Budget-versus-actual report

Do small businesses need management accounts?

Small businesses can benefit significantly from regular management information.

The level of detail should reflect the size, complexity and objectives of the business.

Can accounting software produce these reports automatically?

Accounting software can produce reports quickly, but the reports are only reliable when the underlying bookkeeping is complete, correctly categorised and reconciled.

The figures must also be interpreted.

Who should attend a monthly financial review?

Depending on the business, attendees may include:

• Directors
• Business owners
• Department managers
• The bookkeeper
• The accountant
• A finance manager
• Other people responsible for sales, operations or spending

How long should a monthly review take?

A small business with accurate, current records may be able to complete a useful review in 30 to 60 minutes.

A larger or more complex business may require a longer meeting and more detailed supporting information.

Should I review figures monthly if my business is seasonal?

Yes, but the comparisons should reflect the seasonal nature of the business.

Comparing the current month with the same period in the previous year may be more useful than comparing it only with the previous month.

Final thoughts

Reviewing your numbers every month is not about creating unnecessary paperwork.

It is about giving the business enough information to make decisions while there is still time to act.

Businesses that understand their finances are generally better placed to:

• Manage cash flow
• Protect profit margins
• Control spending
• Prepare for tax
• Invest with greater confidence
• Identify risks
• Measure growth
• Respond to changing conditions

The reports do not need to be excessively complicated.

They need to be accurate, timely and relevant to the decisions facing the business.

Merranti Accounting can help businesses:

• Maintain accurate monthly bookkeeping
• Prepare regular management accounts
• Build budgets and forecasts
• Produce cash-flow projections
• Identify useful performance indicators
• Compare expected and actual results
• Explain financial reports clearly
• Turn financial information into practical actions

Written by Jenny Seaford

Jenny Seaford ACPA is a Senior Accountant at Merranti Accounting.

Jenny works with business owners and company directors to help them maintain accurate accounting records, understand their financial results and meet their ongoing reporting obligations.

As a senior member of the accounting team, her work includes supporting clients with areas such as:

• Annual accounts
• Management information
• Bookkeeping reviews
• VAT
• Financial reporting
• Tax compliance
• Identifying issues within accounting records
• Explaining financial results to business owners

Jenny’s approach focuses on making accounting information understandable and useful.

A set of financial reports should not simply contain figures. Business owners should be able to understand what has changed, why it has changed and whether action is required.

Monthly reviews are an important part of that process.

By reviewing profitability, cash flow, customer debts, costs and tax provisions regularly, business owners have more time to address potential problems and take advantage of opportunities.

Jenny helps clients move beyond viewing accounting as a once-a-year compliance exercise. Accurate and timely financial information can give business owners greater control, support better planning and provide the evidence needed to make confident commercial decisions.

This article provides general information and should not be treated as personalised accounting, tax or business advice. The reports, performance indicators and review frequency appropriate for a business will depend on its size, sector, systems and objectives.