Running a business means making decisions every day, but how often are those decisions informed by what the numbers are actually telling you?
You do not need to spend hours analysing financial reports every week. Setting aside time each month to review a core set of figures can help you understand how the business is performing, identify changes early and make informed decisions about what happens next.
The important part is not simply knowing the numbers. It is understanding why they matter, spotting when something has changed and knowing when you need to take action.
Start with turnover and profitability
Turnover is an obvious starting point, but the figure on its own only tells you so much. Look at the direction of travel and what is driving it. Are certain services or products performing better than others? Has revenue increased or fallen? Is that change expected because of seasonality, or is there something else happening within the business?
Alongside turnover, review your gross profit and gross profit margin. This helps you understand the relationship between what you are charging and the direct costs involved in delivering your products or services. If your gross margin is falling, for example, your costs may have increased without a corresponding increase in your prices.
Net profit is another important figure, particularly when reviewed alongside operating costs. If overheads are gradually creeping up without a corresponding increase in turnover, it is worth understanding why.
Know what is happening to your cash
Your bank balance should form part of the monthly review, but it should be considered alongside what is due to come in and what needs to go out.
Look at expected customer receipts and significant upcoming payments, including suppliers, payroll and tax liabilities. A healthy bank balance does not necessarily mean you have the same amount available to spend if a large VAT, corporation tax or payroll payment is approaching.
If your cash position is weakening, understand the reason. Investing in new machinery or paying annual bonuses may explain a temporary reduction. A continued decline without an obvious explanation needs further investigation.
It can also be useful to monitor debtor and creditor days. If customers are gradually taking longer to pay, the impact may be felt elsewhere in the business. This is particularly important because a profitable business can still experience cash difficulties. We explore this in more detail in our article on why profitable businesses run out of cash.
Don’t look at the numbers in isolation
A number becomes much more useful when you have something meaningful to compare it against. Your budget and forecast provide an important benchmark. You might be making a healthy profit, but if it is considerably below what you forecast, you need to understand why.
Previous performance can provide additional context. For businesses with relatively consistent trading patterns, comparing the previous month and the same period last year can help reveal trends. Regularly reviewing these trends can also support wider business advisory and strategic decision-making, helping you use the numbers to inform what happens next.
For seasonal businesses, however, month-on-month comparisons may be less useful. Comparing August with July might tell you very little if the business naturally experiences significant seasonal fluctuations. Comparing August this year with August last year could provide a much clearer picture.
This context helps distinguish normal fluctuations from something requiring action. One unusual month may have a straightforward explanation. A downward trend over several months deserves closer attention.
Operational KPIs can add another layer. These will vary significantly by sector but could include hours spent per job, units produced or the level of product returns. Changes in operational performance can often help explain what is happening within the financial figures.
Turn your monthly review into action
The purpose of reviewing your numbers is not simply to produce a report. It is to make better decisions.
If something has moved in the wrong direction, investigate what sits behind the headline figure. If turnover has fallen, has the number of invoices reduced or has the average value changed? If margins have tightened, which costs have increased? If cash is falling, is that the result of planned investment or something that needs addressing?
Having up-to-date accounting software is important because it gives business owners access to timely information rather than waiting until year-end to understand what has already happened. Working with a Management Accountant can take this further by bringing together profit and loss, cash flow forecasts, tax provisions, debtor and creditor information and relevant KPIs into a regular review.
At Hayward Wright, our team work with business owners to interpret their numbers and understand what they mean in practice. Rather than simply reporting what has happened, we can help identify trends, investigate changes and turn financial information into practical business decisions. If you would like greater visibility over your business performance and support understanding the numbers that matter, speak to the team about our management accounts and business advisory services.