Not every small business owner has a ton of financial expertise, and it is common for small operations to rely heavily on assistance from accountants and other financial consultants in order to stay on top of their books. While you don’t need to have an MBA degree to run a profitable company, you need to be able to accurately assess your business’s financial health. Here are some of the most important elements in your accounting that you should examine.

Operating Expenses

When you’re reviewing your accounting information, you need to scrutinize every line item on your operating budget carefully. Keep an eye out for variations in costs for ongoing expenses and make sure that you understand the reason behind them. You also need to be diligent about finding ways to rein in costs. Always source your supplies and equipment competitively. Shop around with several service providers before you go into any type of substantial service contract.

Cash Reserves

In general, line items in your budgets should have some room for contingencies. However, you might also have to deal with unanticipated costs that couldn’t fit within the context of your regular line item expenses. To be ready to handle the unexpected, earmarking reserves is always a good accounting practice. A business’ cash-on-hand for contingencies or rainy-day necessities can be a lifeline in turbulent times. 

When you’re reviewing accounting information, keep track of how much liquid cash you have available. Work on identifying the right amount to set aside for reserve or rainy-day accounts every month. 

Audited Financial Statement Notes

If you’re having your financial statements professionally audited, make it a point to review notes about your accounting practices. This type of information is typically found at the beginning or the end of statements in a summarized format.

Auditors will attest to the controls that businesses use to ensure accuracy and restrict access to funds. On the other hand, they may also raise red flags about what a business is doing wrong that could be problematic. Ideally, you should address these types of concerns with a CPA while statements are still in draft form. Taking action to remedy problems can spare you from problematic writeups in your financials that might reflect poorly on your business in the eyes of partners, investors, or lenders. 

Understanding where you stand financially is fundamental to managing a successful small business. It will help you make well-informed decisions about your budget, development activities, and long-term revenue projections.