Monthly Business Reporting: When do you need more than your monthly Profit and Loss statement?

May 20th, 2009

There comes a point in every company’s evolution when a monthly Profit and Loss (Income) statement just doesn’t cut it anymore. But it may not be obvious to you, the business owner, until something goes awry.

If you’re the type of entrepreneur who’s used to doing everything, running the business by intuition instead of facts, you could find yourself in a serious financial setback that could otherwise be avoided.

For example, if you are used to looking at your Income Statement only, you won’t necessarily be able to see a down trend in sales, and the resulting build up of inventory. 

Or maybe certain non-accounting production indicators are heading in the wrong direction but you are currently selling your earliest produced inventory at yesterday’s (lower) cost. By the time the poor results hit your Income Statement, it’s too late.  This is especially important in manufacturing companies with long production lead times. 

I can’t tell you the number of times I’ve watched business owners get caught in this trap. They make a move to grow their business by expanding into a new territory, adding a new product, or buying another company, only to quickly become lost without the critical facts and numbers.

Scenarios like this can be avoided by expanding your financial reporting beyond ‘accounting numbers’ before you make a big business decision.   

Accounting numbers are things like a Balance Sheet and Income Statement. Non-accounting numbers are things like efficiency, production output, labour cost per unit, production costs per unit, sales order book, net sales added, and the like. 

Think about which non-accounting numbers are crucial to your business, and try adding them to your monthly reporting requirements. You’ll quickly find yourself wondering how you got by for so long without them.

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