How’s time spent in your business? Many owners do the work, take a glance at cash flow statements prepared by their bookkeeper, and keep moving.
A simple plan is often the most effective, especially for fast-moving industries (like agencies and consulting firms). However, not looking for trends (positive and negative) in your financial data has consequences.
And this doesn’t need to involve rolling forecasts and detailed financial modeling. Something as simple as regularly reviewing your month over month P&L for these trends gives you clues to things costing your business thousands of dollars (even hundreds of thousands, as you’ll see).
Using Month-Over-Month Reports to See Trends (A Real Client’s Example of how not reviewing their Profit and Loss costs them hundreds of thousands of $)
We worked with an agency, specializing in security. They were doing $10M in top-line revenue, but had no accounting systems for financials for over a year following some turnover in ownership. Once they became a client, we built out their accounting function and began putting together regular reports.
After a few months of collecting this data, we looked at something called “trailing 12-month trends” in their profit and loss statement (P&L). A quick review pointed out that their gross profit margin was in a steady decline. This data gave us a string to pull at, until we found the ultimate cause.
An otherwise healthy business with declining profits must have a reason.
After looking at the history of the agency’s expenses, we noticed the cost for health insurance (when compared to the percentage of wages) was increasing each month at an abnormal rate. After a bit more investigating we found the cause.
For 2 years, no one was removing employees from the health insurance plan when they left the company.
Two years and $200,000 in unnecessary health insurance payments. All completely unnoticed until the company received and analyzed their income statement This is a single example of how much profit & loss trends say about the overall health of your business.
How did we find it so quickly?
We created the financial statements on an accrual basis, then we analyzed the numbers, month over month to look for anything that stood out as peculiar until we found the root cause.
A hard pill for our client to swallow? Of course.
But what’s more (potentially) devastating is an issue continuing to snowball in the background until it causes irreparable damage to your business. A hard dose of reality is far better than closing your doors.
Where to begin?
If you’re not tracking cash flow, profit and loss, or detailed expenses—start that right now, today.
And if you have raw data that’s a mess in the forms of invoices, receipts, bank statements, and other forms of information, get a professional to wade through these waters with you. A bit of hard work gives you a big-picture view of opportunities to better your organization.
Honestly, it takes more than a bookkeeper to get on track. At Momentum, we use a different approach to accounting that gives you the big-picture view—even beyond the financial numbers.
The story above is from a real client. If you want to see more, take a look at how we helped other businesses, like yours. And if you’re ready to get insights into your month-over-month P&L, to find your momentum, get in touch with us today.