Do you understand your accounts?
Or more importantly, Do you understand the hints they give to improve your business?
If the grey matter just went errrrr or huh?! then you are missing valuable signals to improve your business. Take a few minutes now to learn more about your accounting statements.
Understanding this language of finance can reveal strategies that you can immediately put in place to make positive changes to your position.
Over the next few months I will post some short sharp pieces, each focussing on a different ActionPOINT to help improve understanding of your accounts.
Today we´ll look at the Profit & Loss Account (P&L)
The P & L sets out how much revenue you have earned from your customers in a given period and what costs you incurred to achieve it.While it can cover any date range, we recommend regular production of monthly, quarterly and annual accounts.
So here is the boring bit…
Taking the lead from these figures could indicate that your pricing strategy needs a review or that a product would benefit from an investment in marketing…
Again, looking further with the data contained in the Cost of Goods Sold section will uncover a range of sources to recoup lost profit.
Now that you have identified areas of change, ask yourself why might this be?
Have your suppliers raised their prices, but you haven’t raised your own? Have you given the team a salary increase, but not raised your prices? Have you changed how you calculate your prices compared to last year?
Grab that pen again, and write down your findings along with why you think the change happened…… and what you will do to change it!
A good accountant is a key part of your successful company and should be able to highlight these areas. But, as the captain of your ship, you´d benefit from a more solid knowledge of these figures yourself.
As shown above, with just a small understanding of your financial documents, you can significantly raise your results.
Remember, to be truly effective, you should evaluate this on a regular basis in line with ActionCOACH best practice of habitual TEST and MEASURE.
If you need to know more about your Accounts and learn how to use them to improve your profits, you are most welcome to give me a call here or join me at an upcoming event for some practical help.