Building a Financial Review Routine

What's your financial cadence?

Business owners have a typical financial review process that goes something like this:

Bookkeeper or CPA sends financial statements
Owner stashes financials in a drawer/folder
Those financials are never touched

Financial statement analysis is the primary tool when it comes to evaluating business performance (I've said this before).

There's a "what" component and a "when" component to that analysis; here's a simple routine that should work for most businesses. [P.S. we cover the "what" and "how" portions in PMU.]

1) Weekly

Items to review — Sales, KPI scorecard, weekly cash flow, A/R and A/P.

My goal here is to get a quick pulse on how business is performing and what the next few weeks look like. Do I have an upcoming cash crunch and need to focus my efforts on collections or managing billpay? Maybe my KPIs are in the green and I have room for growth projects. I want to stay in front of potential problems and make sure the team knows where we stand; that's the goal of weekly financial metrics.

2) Monthly

Items to review — Full financial statements (monthly view), rolling 12 month analysis, ratio scorecard, monthly view of cash flow, monthly forecast

This is where I do most of my "interpreting" of the financial statements. I'm running my ratios and other analyses to find: 1) areas to improve or tweak in my budget; and 2) throw some added growth effort into.

3) Quarterly

Items to review — Quarterly financial statements (going back ~6–8 quarters), cost structure analysis (and updated breakeven), forecast update

When looking at quarterly financials, you get a completely different view of your business with smoother results. We can add in new metrics here too. This is probably my favorite place to live.

4) Annual

Items to review — Multi-year financial statements, ratio scorecard, full forecast and multi-year plan

This is where you want to look at several years of financials in a single view (5-7 years or more if you have it). We can update our full ratio scorecard with some of those slower, moving metrics like debt-to-equity too. This review gives you a complete business model check-in.

Here's the entire routine in table format:

Why this matters?

Having a good bookkeeper and clean set of financial statements is usually the first point of stress for operators. Knowing what to look at and when typically comes second. I often get asked: "what should I be looking for?"

Creating a routine is the easy part so there shouldn't be any excuses about finding time to review these items. Creating, maintaining, and interpreting them is a separate challenge (more on that later).

Takeaways — Find a regular schedule to review your numbers. Ask for help if you don't know what to look for. It's fine to periodically use your gut/intuition when making decisions, but it's a heck of a lot more impactful when based on real financial data.