The Profit and Loss Report – Are You Getting Your Monthly Financial Scorecard?
Let’s check out the odds…
3 out of 10?
4 out of 10?
Based on my (very) unscientific research over the last twenty years, I’m finding about 3 to 4 out of every 10 small businesses are getting a timely and accurate profit and loss report each and every month.
Special emphasis on these words – timely and accurate.
THE PROFIT AND LOSS REPORT – A MUST HAVE FOR YOUR BUSINESS EVERY MONTH!
At it’s core, a profit and loss report (or P+L if we’re being casual) will recap these critical metrics in your business every month:
- Total sales/revenue
- Total cost of goods sold (or COGS)
- Gross profit (Total sales – Total COGS)
- Total expenses
- Net profit (Gross profit – Total expenses)
Without this key data, it’s a bit like driving a car without a speedometer or GPS. You have no idea where you are going or how you are going to get there! (and we know how that turns out, right?)
IS YOUR PROFIT AND LOSS BOTH TIMELY AND ACCURATE?
Sadly, I see this all too often – the business hands off their financial information to the outside accountant. Then they see a profit and loss report a month or two later. Or even later than that.
Maybe they don’t see this report at all during the year – they only see “how much they made” on their tax return.
Or sometimes I see this – no dedicated team member works on the finances regularly (here’s looking at you business owner!). Bank and credit card accounts are not reconciled. Data entry errors abound, and/or a host of other situations exist where the financial picture for the month is not complete (did I mention recording most everything into the “Ask My Accountant” account?)
Accurate profit and loss reports are the result of these actions:
- Reconciling and updating all bank and credit card accounts – and review/resolve any moldy oldie uncleared transactions too!
- Recording all appropriate month-end transactions (invoices sent, bills entered, etc.)
- Reviewing your inventory value (if applicable) to make sure it is accurate
- Making necessary entries for other areas (payroll, updates to other assets or liability accounts, etc.)
Timely profit and loss reports are normally done within 15 days of each month-end.
A COMPLETE PROFIT AND LOSS REPORT 15 DAYS AFTER MONTH-END – ARE YOU NUTS?
For what it’s worth, I’ll share this with you…
Back in my days as acting CFO for a $10 million firm, we had every month completely closed within five (yes 5!) business days. it was a mandate from the owner of the business, so there really wasn’t a way to say no.
Yes, it took a while to get the processes and procedures ironed out to get there. But it was well worth the effort to create a timely and repeatable closing process.
Maybe your business has specific nuances where five days may be a bit unreasonable. I totally get that.
But 15-20 days should work for just about everyone.
If not, I’d love to know more about why it won’t work for your business.
REMEMBER! THE PROFIT AND LOSS DOES NOT ANSWER…
As mentioned above, the profit and loss report DOES help you understand revenues, expenses, gross and net profits. Knowing this is essential to your success.
But, it does NOT show you:
- Where the cash went last month (or where it may be going next month)
- What your business owns, what it owes to others or what it is worth
These important data nuggets can be mined in other reports out of your accounting system that we’ll cover at a later time.
NEED HELP WITH THIS CRITICAL TASK?
I can’t emphasize enough how important it is for your small business to get a timely and accurate profit and loss report each and every month.
Without it, you will literally be lost in the woods.
Like the idea, but don’t have the bandwidth or staff to handle it?
Let’s talk. Getting an accurate and timely profit and loss report to you is a part of the business financial management services I offer.