Financial reports are an essential part of running a business and part of the foundation for financial success. They are also a great source of information for measuring your success and adjusting your strategy.
But what core financial reports do you need for your mental health practice, and why do they matter?
Financial statements or reports work similarly to KPIs in that they provide a picture of where you stand financially and can offer valuable insights into your company and a way to track your progress.
That is why you should regularly generate these core financial statements to monitor your practice’s financial health – not just at tax time!
Balance sheet
A balance sheet shows your assets (what you own), your liabilities (what you owe), and your equity in the company at a specific date in time.
The assets are then split into current and long-term assets.
Current assets include cash and other assets that are expected to be (or could be) converted into cash within one year. And long-term assets are anything you may not be able to convert to cash, such as your office furniture.
Current liabilities are the same and include debts expected to be paid within one year, such as accounts payable or payments on loans that will be paid in the year.
The equity portion of the balance sheet is represented by
- Owner’s Equity which is your initial investment into the company
- Retained Earnings which is money earned in the company that has been saved
Balance sheet example:
ABC Co.
Balance Sheet
At December 31, 20XX
| Assets | |
| Cash | 27,000 |
| Accounts Receivable | 750 |
| Total Current Assets | 27,750 |
| Office Furniture & Equipment | 5,200 |
| Total Long-term Assets | 5,200 |
| Total Assets | 32,950 |
| Liabilities | |
| Long-term loan | 25,700 |
| Total Liabilities | 25,700 |
| Retained Earnings | 7,250 |
| Total Liabilities & Equity | 32,950 |
Profit & Loss statement
A profit and loss statement shows how much money you earned, how much you spent and how much you kept as profit over a specific period of time.
Once you have a Profit & Loss statement, you have to know how to interpret it to be useful.
- Have expenses increased or decreased compared to previous months or years? Expenses may increase or decrease with seasonal changes, but compare to the same month in the previous year for an accurate comparison.
- Has revenue increased or decreased compared to previous months or years? How come?
- How does your profit & loss statement compare to your budget? If there are variances, find out why.
Profit & loss statement example:
ABC Co.
Profit & Loss Statement
For the Year Ended December 31, 20XX
| Revenue | |
| Counselling Services | 47,000 |
| Total Revenue | 47,000 |
| Expenses | |
| Rent | 6,000 |
| Utilities | 2,400 |
| Telephone/Internet | 1,800 |
| Office Supplies | 300 |
| Total Expenses | 10,500 |
| Net Income | 36,500 |
Cash flow statement
A cash flow statement shows the cash that flowed in and out of your business over a specific period of time.
It is broken down into cash flow from operating activities, cash flow from investing activities and cash flow from financing activities, so you know the sources and uses of all cash.
Cash from operating activities includes net income (from your profit & loss statement), and then you add back non-cash items such as depreciation. Changes in net working capital represent the changes in current assets and liabilities, such as accounts receivable and accounts payable.
Cash from investing activities includes purchasing or selling capital assets such as office furniture and computers.
Cash from financing activities consists of the proceeds and payment of long-term loans.
Cash flow statement example:
ABC Co.
Cash Flow Statement
For the Year Ended December 31, 20XX
| Operations | |
| Net income | 36,500 |
| Depreciation | 1,300 |
| Changes in net working capital | (8,400) |
| Net Cash Flow from Operations | 29,400 |
| Investing Activities | |
| Purchase of capital assets | (4,500) |
| Net Cash Flow from Investing | (4,500) |
| Financing Activities | |
| Repayment of loans | (3,000) |
| Net Cash Flow from Financing | (3,000) |
| Cash, Beginning of Year | 5,100 |
| Cash, End of Year | 27,000 |
| Change in Cash | 21,900 |
How can these reports be created?
These core financial reports should be generated on a monthly or quarterly basis and definitely at the end of the year.
Annual profit & loss statements are essential for filing your income tax, whereas monthly and quarterly allow you to track progress, make adjustments and make sound business decisions for the future.
You have a few options for generating financial statements for your practice.
- DIY in a spreadsheet – You can create your own statements in Excel using your bank and credit card statements. This is free but time-consuming, and it’s easy to make mistakes.
- Generate reports from accounting software – If you currently do your bookkeeping in accounting software, you can generate financial statements from their built-in function as long as your bookkeeping is accurate and up to date.
- Hire a bookkeeper or accountant to generate statements for you.
Need help creating the right reports for your practice?
Each of these reports is essential to understanding the financial health of your mental health practice and can be leveraged to make good business decisions.
These reports must be generated regularly to keep on top of the financial side of your business.
If you’re finding it challenging to create your financial reports or simply don’t have the time, Leichter Accounting Services is here to help. We specialize in bookkeeping, accounting, and tax service for small businesses with friendly, professional support.