When business is busy, it is tempting to judge its condition by one number: sales, the bank balance or the period’s profit. Each answers a different question. Reviewing them together helps explain the movements behind the figures.

1. The period’s result: what is the activity producing?

Start by confirming the reporting period. One month’s result is different from the cumulative result since the start of the year. When comparing periods, discuss changes in sales volume, seasonality and one-off transactions separately.

2. Cash movements: when does money arrive and leave?

A sale may be recognised before its payment is collected. Profit therefore does not mean the same thing as money in the bank. For example, rent or a supplier payment may fall due while the proceeds of a credit sale are still outstanding.

The period’s profit, available cash and expected receipts are three distinct but complementary pieces of information.

IAS 7 separates cash flows into operating, investing and financing activities. The official explanation is on the IFRS Foundation’s IAS 7 page. Asking why money moved is also a useful starting point when reviewing bank transactions.

3. Receivables: which payments are expected, and when?

Look at due dates as well as the total balance. An amount that is not yet due needs different follow-up from an overdue amount. If the payment plan changes, record that change in the tracking information as well as in meeting notes.

Questions for your monthly review

  • Do the reports being compared cover the same period and scope?
  • Which activities or one-off transactions explain the change in the result?
  • How do expected receipt dates compare with upcoming payment dates?
  • Which movements need an explanation, and which delays need follow-up?

Finish the discussion by assigning a next step and an owner to each open question. Reports then become more than documents to file: they also carry the issues to follow up at the next meeting.

This article provides a general framework for understanding reports. For a review based on your own records and circumstances, contact the practice.