Financial management: reports, KPIs and when to hire a CFO
Good financial management isn't about complex spreadsheets. It's about checking a few key numbers regularly, understanding what they mean, and acting early. This guide explains the reports that matter, the numbers to watch every month, the warning signs of trouble, and when to bring in more financial help, including a part-time or fractional CFO.
In short
- Three reports tell most of the story - profit and loss, balance sheet and cash flow.
- Pick a handful of numbers to review every month, such as sales, gross margin, cash, debtors and overheads.
- Compare actual results with a budget and with similar businesses, and ask why they differ.
- Watch for warning signs like regular cash shortfalls, overdue tax debts and paying bills late.
- A bookkeeper keeps records, an accountant advises on tax and structure, and a CFO helps with strategy and growth.
The three core reports
Your bookkeeping software can produce all three. business.gov.au has free templates.
| Report | What it shows | Question it answers |
|---|---|---|
| Profit and loss (income statement) | Sales, expenses and profit over a period | Am I making money? |
| Balance sheet | Assets, liabilities and net assets on a date | What do I own and owe? |
| Cash flow statement | Cash coming in and going out | Can I pay my bills? |
- The profit and loss statement lists sales and expenses and shows your profit or loss. business.gov.au suggests using it to help set sales targets and prices.
- The balance sheet gives a picture of financial health at a moment in time. It can also help you work out working capital and how quickly you could pay current debts.
- The cash flow statement shows timing. A profitable business can still run out of cash. See Financial planning and cash flow.
Numbers to check every month
Pick a short list and review it at the same time each month.
| Number | What it tells you |
|---|---|
| Sales | Compared with last month, last year and your budget |
| Gross profit margin | (Sales minus direct costs) ÷ sales. Are your prices and costs right? |
| Overheads | Rent, wages, software and other fixed costs. Are they creeping up? |
| Net profit | What’s left after all expenses |
| Cash in the bank | And how many weeks of expenses it covers |
| Debtors | Money customers owe you, and how long they take to pay |
| Creditors | Money you owe, and when it’s due |
| One or two drivers | For example average sale, jobs per week, website conversion rate |
Put them on one page, with this month, last month and the same month last year. Look for trends, not single numbers.
Budgets and benchmarks
- Set a yearly budget for sales and costs, broken into months.
- Compare actual results with the budget each month, and ask why they differ.
- Compare with similar businesses. The ATO’s small business benchmarks let you compare your business’s performance with others in your industry. Industry associations may also have benchmarks.
Warning signs
Act early if you notice:
- regular cash shortfalls, or using credit cards to pay everyday bills
- paying suppliers, wages or tax late
- falling margins or sales over several months
- growing debts with no plan to pay them.
If you run a company, ASIC explains directors’ responsibilities when a company is in financial difficulty, including the duty to prevent insolvent trading. It says acting early gives you more options.
Free help is available. See Business credit cards, credit scores and managing debt.
Who can help
| Role | What they do |
|---|---|
| Bookkeeper | Records transactions, reconciles accounts, prepares reports and may handle payroll |
| BAS agent | Registered to help with BAS (business activity statements) |
| Accountant | Tax returns, tax advice, structures, financial statements and general business advice |
| Part-time or fractional CFO | Forecasting, funding, pricing, systems, reporting and growth strategy |
| Financial counsellor | Free, confidential help if you’re struggling with debt |
When a CFO makes sense
A CFO (chief financial officer) is a senior finance role. Most small businesses don’t need one full-time, but a part-time, interim or fractional CFO can help when:
- you’re growing fast and need forecasts and funding
- you’re preparing to raise money, borrow, buy another business or sell
- your reports don’t tell you what you need to know
- you’re about to make a big decision, such as new premises or a major hire.
Ask about their experience with businesses like yours, how they’ll work with your accountant, what they’ll deliver, and the cost. See Finding a mentor, coach or adviser.
Common questions
What financial reports should a small business review?
The three core reports are the profit and loss statement, which shows whether you’re making a profit; the balance sheet, which shows assets, liabilities and net assets at a point in time; and the cash flow statement, which shows money coming in and going out.
What KPIs should a small business track?
Start with a handful: sales, gross profit margin, overheads, net profit, cash in the bank, money owed by customers and how long they take to pay, and money you owe. Add one or two that drive your business, such as average sale or jobs per week.
What is a fractional CFO?
A fractional or part-time CFO (chief financial officer) is an experienced finance professional who works with your business for a few days a month or on a project. They help with forecasting, funding, pricing, systems and growth, without the cost of a full-time hire.
What are the warning signs of financial trouble?
Regular cash shortfalls, paying suppliers or tax late, using credit to cover everyday costs, falling margins and rising debts. ASIC says acting early gives company directors more options. Talk to your accountant or a financial counsellor as soon as you notice problems.