Every choice you make as a business owner is informed by your knowledge and experience. As you expand your operations, make purchases, hire new staff, and set prices, you always have the same goal in mind: maximize profitability for your business.
You understand that profits are what allow you to pursue your dream, provide fair wages, and make investments to produce the best products or services possible. And you’ve seen how learning new information about your business has helped you make better decisions that result in wider profit margins and more satisfied customers.
It follows that you would want access to more information that could help you improve profitability. You’ll be glad to know that much of this information is already available to you. With thorough and accurate reporting processes in place, you will be able to see profit and loss for each client, each project, each product, or each service.
Categorized reporting processes will allow you to create profit and loss statements that reflect profitability by client and other categories relevant to your operations. Expense statements, billing, timekeeping, and any other processes that have to do with money coming in or going out should be factored into your reporting.
Be aware that building out these processes should be done with your business’s unique needs and goals in mind. Because accuracy is vital to creating actionable reports, seek out help from someone with experience setting up these processes. Make sure your QuickBooks or other accounting software is synced properly with your reporting systems, e.g., point-of-sale, purchase tracking software, payroll, etc.
All profits and losses should be tagged according to the categories that matter to YOU. For instance, a restaurant owner may want to understand how profitable her dine-in business is compared to her catering orders. By tagging purchases and income appropriately, she could know how much money she’s made from her dine-in customers, how much she’s made on catering orders, and how much has been allocated toward purchases that impact both categories.
Your profit and loss statement can be as informative as you want it to be, based on the categories that most impact your bottom line. Understand and implement the process flow well, and your profit and loss statements will reveal much more than you thought they could.
Setting up your records to reflect profitability by various categories will require you to put processes in place that will help other aspects of your business, such as logging hours and billing clients. Getting more information out of reports means recording more information, but it doesn’t have to result in a more complicated process for you.
Many general and industry-specific software tools exist that can help you automate or simplify these processes. To develop an overall strategy suited to your business takes effort, but time well-spent means time saved in the long run, for you and your staff.
Expense and income logging procedures designed for your business will result in decreased labor costs, as related tasks become streamlined and simplified. An experienced financial advisor can ensure your processes deliver vital information to your reports, without overcomplicating things for you and your team. Change can be hard, so don’t just change. Simplify.
Once your profit and loss statement reveals your profit margin for each project, job type, client, or any other category you choose, it’s your chance to begin making positive changes to your business. If you find your margins are too thin for a particular type of job, you can adjust your pricing or bidding accordingly. Conversely, if your margins are better for a particular type of service you provide, consider giving more focus to that area of your business.
Categorized reports will allow you to clearly reevaluate your choices of materials, contractors, rental equipment, or any other costs associated with providing a given service. More detailed statements will enable you to target investments toward expenses that will do the most for your bottom line, and you’ll make those purchasing, marketing, and hiring decisions with a new level of confidence.
I’ve had clients come to me confused about why their profit margins weren’t matching their expectations. There’s always an answer, though it might not be revealed in their current profit and loss statement. Simply put, categorized reporting reveals the inconsistencies they’re looking for and provides the roadmap for creating effective solutions.
Trust the instincts that helped you establish your business. But verify those instincts with data that will reveal a world of possibilities. All of the sudden, “what’s next?” will be a question you can answer with confidence and a plan.
Put your finger on the pulse of your business and understand better what’s working and what isn’t. Make choices with the confidence that thorough profit and loss statements can provide. Know where to focus your efforts to grow your business and adapt well to new information. Don’t wait for unexpected results to send you searching in the dark for answers.
Through Advantage Insights, I offer Entrepreneur Advisory services that help you build a budget, and understand how and why your reporting and budgeting processes are critical to your continued success. I help clients track their expectations as compared to results, and show them how to use their profitability reports to improve their results.
We can support this work remotely through virtual financial management, and make sure all elements of your cash inflows and outflows are reported correctly.
Advantage Insights’ Financial Management and Entrepreneur Advisory services are designed specifically for you and your business, no matter how your records look now. Financial services can help you save money now and make informed decisions for your future.
If you want to see the difference financial services can make on your business, reach out for a free consultation!
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