well in in order. But, are you using the numbers in
your accounting to make key strategic decisions about
your business?
CASE STUDY
Sally has four stores on one accounting system - the
numbers are well kept for each store and for the
company as a whole. She has managed all of her stores
pretty well with traditional accounting for years -
she can track all of the revenue daily and check the
gross margins. But she can't print a profit and loss
statement (P & L), and even if she did, she wouldn’t
know exactly how to use it.
As far as Sally knows, she sees a P & L once a year
when her accountant sends it along with the tax
returns at tax time. In that case, the accountant has
worked hard to show the minimum profit possible for
tax reporting purposes. But Sally must have done
better than that!
WHY A P & L?
In her CEO Mastermind group, Sally learned from her
peers several benefits of actually reviewing a P and L
monthly:
* She will see her actual profit, not just work on
growing margins
* She can analyze expenses on a regular basis and
control costs more effectively
* She can make strategic decisions for the future
based on present income and expenses
But the real issue is this: creating what we call a
Financial Dashboard. If Sally can create a P & L for
each division, or product category, or what we call a
profit center, then she can know precisely how
profitable each profit center is.
Are you actually making money with each of your
product lines or divisions? When we analyzed Sally's
company in this way, we found that one of her products
was actually loosing money every time it was
delivered!
So we went to work with Sally to set up this dashboard
and began to review it together monthly. A trend over
three months showed that, indeed, that division was in
trouble. Sally cut back on staff and super-charged a
marketing effort.
We began looking at the P & L weekly, and saw an
immediate trend upward. By the end of the second
month, the division was breaking even. By the end of
the third, it the bottom line profit for that division
was 5%
WHAT SHOULD YOU DO?
Many small business owners do not manage their
companies this way; they’re “too busy doing the work.”
Well, time to change, my friend. This single simple
management technique could change the entire outlook
of your company, as it did Sally’s.
Create a P & L for each profit center (each distinct
division, product or service in your company) and
review at least quarterly - monthly if possible. The
dirty little secret is - most accountants know about
this but do not get their clients to do it - they are
focused primarily on "tax accounting."
What we need as business owners is "business
management and Profitability accounting." Try it
today!
Henri Schauffler, The CEO Coach, has dedicated the last 20 years to helping
small businesses like yours to Outmanage, Outhire, Outsell and Outprofit
All the Competition. For a FREE business assessment and tune up to see
exactly how you are doing in all Eight Essential Areas for Business Success,
go to http://www.QuickBizQuiz.com.
