Most CPA firms create financial statements for their clients. This blog post tells you how to review financial statements efficiently and effectively.
The best way to review the financial statements is to have something to compare to.
Two years of data are great to look at plus a 3rd and 4 column one showing the differences between the years and also one to show the difference in percentages. This is called comparative financial statements
For our clients, we would look at big differences that pops out. Once we identify them, we question them, why big differences exist.
Keep in mid, we are not interrogating the business rather we would like to understand what happened and what can happen and also if this happens more, would there be risks? Answering these provide so much insights.
For example, sales from year 1 to year 2 went down by 20%
Why did sales decrease by 20%?
Can we increase sales in the future?
Would this be a trend for the industry?
Did the competition experience this as well?
Can we replace the revenue loss by an alternative product or service?
Did expenses also decrease by 20%?
Once we do this for each accounts, such as cash, investments, capital assets, cost of good sole, supplies, rent, … we know not only where are business is heading for but also the industry.
It also gives us a heads up as to what to do in the future of our business or industry.
When have you looked at your financial statements?
When have you looked at comparative financial statements?
Have yo looked at the differences?
Send me your financial statement and I’ll crunched them with differences and ratios and we can discuss what is happening to your business.