You need a monthly P&L. Why?

A trading, profit and loss account (P&L) is the story of your Company’s trading over a given period of time.One of the most important objectives of a business is to make profit. The P&L account shows to what extent the business has been successful in achieving this objective. Also the P&L is the standard way of informing all parties internal and external, of how the business is performing.

I’ve always believed that an MD coming fresh into a Company can actually start being effective from day one if they have access to a good monthly Profit & Loss report and an experienced finance manager.

A monthly P&L report showing variance to last year and forecast – by sales, gross profit and overhead lines.

Managing by exception using variance analysis will help the MD make immediate decisions. Informed decisions based on drill downs provided by the experienced finance manager.

Too many owner/managers are being told to produce a monthly P&L report  without explaining why. As though producing a monthly P&L ticks a compliance box.

Focusing on the variances showing up in the P&L the MD will want some answers. An experienced finance manager should have them to hand because they will have discussed the variances with the relevant department heads prior to a meeting with the MD.

Q – Why is the gross profit down on last year? A – The Sales Director says they’re having to discount to fend off a new competitor.

Q – Why are payroll costs down? A – Because we haven’t been able to find the new Production Manager we budgeted for.

Q – Why is there an overspend on advertising?  A – Because a campaign to drive up sales lead generation was approved at the last Board meeting.

You probably have to send a P&L monthly or quarterly to your Bank. Don’t assume they don’t read it. Being asked one of the above questions five minutes into a meeting with your new relationship manager and not knowing the answer can be embarrassing.

Your bank balance at any given time does not give a true picture of the cash being generated by your business. Your P&L together with a Balance Sheet and Cash Flow Forecast will provide you with the most realistic picture you can have.

It is vital to have an accurate P&L in order for the other two reports to be relevant.

So next time ask “why do I need a monthly P&L and by the way, where can I get an experienced Finance Manager?”

Note:-

You don’t need to employ an experienced finance manager full time. They are available on a part time basis under the titles of part time FD or portfolio FD. They will invariably have worked in a variety of industries and the FD in the description will also mean that they will be invaluable when you are looking at strategy, new ventures or external funding for growth. Issues which require a big picture view. Their day rates will vary but will generally cost less per annum than a full time admin assistant.

They will not generally conflict with your appointed Accountancy practise as their service offering is different and compatible. In fact your new part time FD will very quickly want to meet up with your Audit Partner to ensure there are no conflicts and also with your Banks relationship manager to discuss the ongoing management information requirements.