Where are we now? (making sense of profit and loss)Getting a grip on what your business is doing is very important.
In my last blog I wrote about a business I worked with where, by looking at how the different income streams performed, the directors had greater knowledge of how the business was doing. This allowed them to make more informed decisions and direct their efforts where they had most effect; turning a profitable business into an even more profitable one.
Another business I worked with had an issue with constantly fluctuating raw material costs, which gave the impression that they were making massive profits one month and small profits (or even a loss) the next.
I introduced standard costs to the products and treated the fluctuations in raw material cost as a separate issue.
By doing this the directors could see what the underlying performance of the business was and so could make informed decisions on how to push the business forward; knowing where they should invest time and money.
If you don’t have a clear picture of your business, it can be easy to be distracted by factors outside of your control which could possibly lead to making the wrong decisions for the longer term.
12th June 2018