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The Power of Profit & Loss Analysis

When it comes to financial reports there is no other report that is more anticipated by business owners, directors and senior leadership teams than a profit & loss report. It’s the report that lets them all know if all their efforts are paying off in the form of a profitable business.

Analysis:

If the gross profit and the bottom line match the business expectations then most users are happy with the report. However, if they do not align to expectations, it usually prompts a request for the accountant and management to analyse the factors behind the results i.e. they will review the sales, the costs and the overheads with a fine-tooth comb.

Out of this analysis process issues are uncovered. For example what is causing the invoicing to be delayed. These process issues usually lead to realisations such as why are we paying that much for this? In turn this leads to conversations internally to understand if the business is being efficient. Has the business become complacent with certain suppliers? Should it now be looking at alternatives? These reviews can also be the catalyst to look at development opportunities for the business. It can look to become more efficient via process reviews or capital investment.

Action:

So, the question is why wait for a bad month to trigger this analysis? Each time you prepare a set of management accounts there is always a benefit in undertaking the analysis. Even when the numbers are good, we should always be looking for opportunities to improve them turning a good performance into a great performance.

If you feel that your business is missing this insight which allows you to capitalise on the opportunities you can uncover from your profit and loss then please feel free to get in touch at info@whittockconsulting.co.uk and we would be pleased to help.