Monthly financials: Overview, definition, and example
What are monthly financials?
Monthly financials refer to the regular financial reports a business produces each month to track its financial performance. These reports typically include key documents such as the income statement (profit and loss statement), balance sheet, and cash flow statement. Monthly financials provide a snapshot of a company’s financial health, showing how much revenue it generated, what expenses it incurred, and whether it is making a profit or loss. These reports are essential for business owners, managers, and stakeholders to make informed decisions about operations, investments, and budgeting.
Why are monthly financials important?
Monthly financials are important because they allow businesses to stay on top of their financial performance in real-time. By reviewing these reports regularly, a company can spot trends, identify potential problems, and make adjustments before issues become significant. Monthly financials help businesses manage cash flow, track profitability, and ensure they are meeting financial goals. They also provide essential information for decision-making and help ensure that the company remains financially stable and compliant with tax and regulatory requirements.
Understanding monthly financials through an example
Let’s say a small business runs a retail store. Each month, the business owner reviews their monthly financials, including the income statement, which shows total sales, costs of goods sold, operating expenses, and the net profit or loss. If the business is showing a decline in profit for two consecutive months, the owner may decide to reduce expenses or implement a sales promotion to boost revenue.
In another example, a startup business tracks its cash flow through monthly financial reports. They notice a pattern of negative cash flow due to slow payments from clients. Recognizing this trend early allows the startup to take action, such as offering discounts for early payments or negotiating more favorable payment terms with clients, ensuring that they maintain sufficient cash flow.
An example of a monthly financials clause
Here’s how a clause related to monthly financials might appear in a contract:
“The Company shall provide its financial statements, including income statement, balance sheet, and cash flow statement, on a monthly basis. These reports shall be delivered to the Stakeholders within ten business days of the end of each month.”
Conclusion
Monthly financials offer a crucial tool for businesses to stay on top of their financial health. By regularly reviewing income statements, balance sheets, and cash flow reports, businesses can identify trends, address potential issues, and make informed decisions. These reports not only help maintain financial stability but also ensure that businesses can meet their financial obligations and continue to grow. Regular review of monthly financials is essential for good financial management and long-term success.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.