Have you ever heard the saying “you’re only as good as your last P&L”? What it basically means is there are typically 12-13 reporting periods in the business year and your business’ performance must be monitored closely to help ensure you put as many points on the scoreboard (profitability) as you possibly can before the whistle blows at year-end.
You either have 12 months or 13 four-week periods. For accounting reasons, most businesses use 12 reporting periods. For this article we will discuss “business performance” as it pertains to 12 report cards we call P&Ls.
What is a P&L? If you own a business surely you know what a P&L is, right? Well, not so fast. We have encountered businesses who have not yet created their P&L. What goes into a great P&L? Your P&L should summarize your company’s ability, or lack thereof to generate profits while monitoring and measuring all revenues, expenses and costs associated with operating your enterprise. Here at ShaBro Office Solutions we can help you build your P&L while taking into consideration every measurable financial facet of your company.
A well-constructed P&L will include a line of accountability for every penny of inflow and outflow for your company. As we move through this article you are going to learn your one and only true friend on your P&L is “top-line sales”. Of course, “bottom-line profit” is what you may “think” matters most but let’s look at the key areas of any well-constructed P&L:
- Sales & Revenue
- Cost of goods sold
- Operating expenses
- Tax expense
- Interest expense
- Net income (bottom-line profit)
Your P&L may include up to 80, 90 or more lines of information. There are sections for your “fixed” and “variable” expenses. An example of a “fixed” expense would be a monthly rent / lease payment as secured by a rental agreement or lease while an example of a “variable” expense would be your energy bill which can fluctuate from month-to-month.
Once your P&L is built you will be able to objectively look at every area of your business and determine where your strengths and weaknesses exist. BUT, you need to have benchmarks and goals.
Here are some things to consider:
- Line-by-line, what are you measuring against? For budgeting and forecasting purposes; how do you know if your sales and expense goals are realistic? Are they too high or too low?
- Are your cost-of-goods sold (COGs) comparable to your competitors? Are your COGs otherwise in-line regarding your finished product or service delivered although it may be slightly higher than your competition?
- What are the realistic payroll expenses associated for your business? Payroll costs often account for the largest expense within most organizations not-to-mention related costs such as health, retirement, uniform, perquisites and other employee benefits.
- Is your document flexible enough for you to run “what-if” scenarios? You may be amazed at what can happen (increased flow-through profits) when you are able to illustrate a 260 basis point improvement among 8 expense lines in addition to a 170 basis point improvement with COGs? NOW, you will be better prepared to install an operational plan that can include actionable activates to not only focus on sales but also expense management.
Remember when we said your best friend on your P&L is your top-line sales? Well, it’s true and here’s the good news – with a well-built P&L powered by Shabro Office Solutions we can help you and your best friend month after month throughout the year!
Call us today and let us help you build your P&L.