One of the most important reasons to maintain good records and to use generally accepted accounting procedures is that you can use your monthly statements to analyze the health and progress of your business. Your balance sheet, for example, can help you determine if too much of your cash is tied up either in inventory or in accounts receivable.

The profit and loss statement will be one of your most useful reports, allowing you to compare your income and expenses to your projected budget. When you began the year, how much profit did you expect to have each month? Are you below or above your target? Is there a revenue problem (you're not selling enough) or an expense problem (you're spending too much)? Your statements will let you know exactly where the problem is. It might be, for example, that your cost of goods sold is too high. To solve the problem, you can look at your pricing to see if the market will bear a price increase, or you can try to source your materials at a lower cost.

Look not just at the monthly figures, but year-to-date figures as well. Search for trends. Are your overhead costs rising? Do you need to pass those costs on to your customers in the price of your goods or services? Or perhaps you need to look again at ways to reduce your expenses. The key to dealing with any business challenge is to catch a problem before it becomes insurmountable and to identify a negative trend so that you can act quickly to reverse it.