As a small business owner, you make hundreds of decisions every month—some big, some small. From hiring and marketing to pricing and inventory, every choice you make affects your bottom line. Yet many entrepreneurs make these decisions based on gut feeling or incomplete information.
Here’s the truth: your financial statements are one of the most powerful decision-making tools you have. When used correctly, they can help you identify opportunities, avoid pitfalls, and grow your business strategically.
(for a quick refresher: Small Business Owner’s Quick Guide to Understanding Financial Statements)
This blog will walk you through how to use your financial reports each month to make smarter, data-informed decisions.
Step 1: Set a Monthly Financial Review Date
Just like you’d set aside time for payroll or inventory, schedule a recurring monthly meeting with yourself (or your team) to review your financials. Consistency is key. By reviewing your reports regularly, you build context and can spot trends before they become problems.
Pro tip: Make your review date the week after your books close for the prior month. That gives your bookkeeper or software time to finalize the numbers.
Step 2: Focus on the Three Core Financial Statements
- Income Statement (Profit & Loss)
This shows your revenue, costs, and profit over a period of time. Look for:
- Top-line trends: Are sales increasing, decreasing, or flat?
- Profit margins: Are you keeping a consistent percentage of revenue as profit?
- Expenses: Are any categories growing faster than your revenue?
Sample Decision: If your marketing expenses increased but sales didn’t, it may be time to revise your ad strategy.
- Balance Sheet
This gives a snapshot of what you own and owe at a specific point in time.
- Cash position: Do you have enough liquid assets to meet short-term needs?
- Debt levels: Are liabilities growing faster than assets?
- Accounts receivable and payable: Are you collecting from customers and paying bills on time?
Sample Decision: If accounts receivable is growing too fast, it may be time to tighten your payment terms.
- Cash Flow Statement
This tracks money coming in and going out, segmented into operations, investing, and financing.
- Operating cash flow: Is your business generating cash from day-to-day operations?
- Negative cash flow: If you’re consistently spending more than you bring in, it’s a red flag.
Sample Decision: If you’re cash-flow negative but profitable on paper, you may need to delay spending or secure short-term financing.
Step 3: Use Key Ratios to Monitor Financial Health
Don’t worry—you don’t need to be a CPA to use basic financial ratios. Here are a few that can quickly reveal the health of your business:
- Gross Profit Margin = (Revenue – COGS) / Revenue
- Indicates how efficiently you produce your product or service.
- Current Ratio = Current Assets / Current Liabilities
- Measures your ability to cover short-term obligations.
- Net Profit Margin = Net Profit / Revenue
- Shows how much profit you’re making from every dollar of sales.
- Accounts Receivable Days = (A/R / Total Sales) x 365
- Measures how long it takes customers to pay.
Use these ratios to set benchmarks and watch for changes that signal it’s time to take action.
Step 4: Create a Simple Monthly Dashboard
If reading full reports feels overwhelming, simplify things with a one-page dashboard. Include:
- Total revenue
- Gross profit
- Net income
- Cash on hand
- Key ratio snapshots (like net margin or A/R days)
- Any custom KPIs specific to your industry (e.g., average ticket size, client churn rate)
There are plenty of tools (like QuickBooks, Excel, or specialized dashboards like Fathom or LivePlan) that can generate visuals from your data.
Bonus: Add a “traffic light” color code (green/yellow/red) to quickly see which areas need attention.
Step 5: Make One Action-Oriented Decision
The point of reviewing your reports isn’t just to read them—it’s to use them. After each monthly review, commit to taking one specific action based on what you learn.
Examples:
- Cut or renegotiate a recurring expense
- Follow up on overdue invoices
- Shift budget from underperforming ads to organic outreach
- Delay a big purchase until cash improves
- Raise prices on your best-selling service
Tracking the impact of those decisions month-over-month reinforces the value of this routine.
Step 6: Involve Your Team (When Ready)
Once you’re comfortable, consider involving key team members in the review process. This encourages transparency and accountability and gives everyone a clearer picture of how their roles impact the company’s financial success.
- Your marketing lead can correlate spend with sales
- Your operations manager can look at labor costs
- Your bookkeeper can flag inconsistencies or risks
Final Thoughts
Reviewing your financial reports monthly isn’t about being perfect with numbers. It’s about building confidence and control. The more you practice, the more empowered you’ll feel to make smart, forward-thinking business decisions.
If you’re still unsure where to start, download our free Small Business Owner’s Guide to Understanding Financial Statements [Insert Link] — it breaks everything down in plain English.
You don’t need to be an accountant to take control of your business. You just need the right habits and a little practice.
Looking for a partner for insights in analyzing your financials? Team with CRI Payroll Bookkeeping Services and make confident business decisions from your financials.