Reading your business finances: profit and loss, cash and the balance sheet

A business records a sale when it issues an invoice, not when the customer pays. It records a cost when the expense is incurred, not necessarily when it leaves the bank. That gap is why a business can show a healthy profit and still struggle to pay suppliers and salaries at month-end.

The usual causes are predictable: customers paying slowly, materials bought well before a job is invoiced, retention held back on contracts, stock sitting on shelves, loan repayments and tax payments that do not appear as expenses in the same way. The cash flow statement and a simple rolling forecast bring these into view.

You will learn to build and read a 13-week cash flow forecast on your own numbers, so a tight month shows up weeks before it arrives rather than on the day the debit order bounces.

• Debtors: money owed to you that has not arrived yet
• Creditors: money you owe that has not left yet
• Timing: deposits, retentions, stock and tax payments
• Commitments: loan repayments, leases and fixed debit orders

The balance sheet is a snapshot of what the business owns and owes on a single date. It is the statement owners read least, and the one that often tells the most about risk. It shows how much is tied up in debtors and stock, how much is owed to suppliers, the bank and SARS, and how much of the business actually belongs to you.

Two simple checks go a long way. First, can the business pay what it owes in the next few months from what it will collect in the same period? Second, is the amount owed by customers growing faster than sales? If it is, the business is financing its customers, and that usually ends in a cash squeeze.

Most business problems are visible in the numbers months before they become a crisis. The skill is knowing where to look and checking regularly. In the training we go through a risk check on your own business, so you leave knowing which of these apply to you and what to do about each one.

Statutory obligations belong on this list. VAT returns, PAYE, UIF and SDL submissions, provisional tax and the annual company return all have deadlines, and penalties for missing them come straight out of cash. I will not replace your accountant or tax practitioner, but you should know what is due, roughly when, and whether the money is being set aside for it.

• Customer concentration: too much revenue from one or two customers
• Debtor days creeping up: customers taking longer to pay
• Overhead creep: fixed costs growing faster than sales
• Tax and payroll deadlines without cash set aside
• Owner-dependency: nothing moves when you are not there
• Personal guarantees, overdrafts and facilities you have signed for

Understanding the numbers once is useful. Looking at them every month is what changes the business. A good monthly review takes under an hour, covers the same handful of figures every time, and ends with one or two decisions rather than a report nobody reads.

We set up a review on a template that fits your business: revenue and gross margin against the previous month and the same month last year, cash position and the next 13 weeks, debtors by age, creditors due, and any statutory payments coming up. Then you run the first one with me, so the habit starts while the training is fresh.

This training does not replace your accountant or bookkeeper. It makes the relationship more useful. An owner who can read the statements asks better questions, spots errors sooner and gets advice that fits the business rather than generic compliance work.

We cover what to ask for: management accounts monthly or quarterly rather than only annual statements, a breakdown of revenue and costs that matches how you think about the work, and early warning of tax payments. If your current records cannot support useful reports, I will say so, and the data cleanup service exists for exactly that situation.