Your P&L: Where to Focus https://ift.tt/2WnKCkZ
The quick death of any young company is often the lack of focus on the right areas of their profit and loss (P&L) statement. Established companies can likely get away with a lack of focus and oversight for a while, but lack of attention to the details will eventually have negative impacts. The goal of this article is to discuss Your P&L: Where to Focus. Since every company is so diverse we will keep this discussion high level to generate thought starters. Most leaders have some level of understanding of a P&L, though what is sometimes lacking is the diligence of how to monitor a P&L to spot issues and trends. Major Financial Statements Financial statements and reporting follow accounting and financial standards established by the Financial Accounting Standards Board (FASB) that are in-line with generally accepted accounting principles (GAAP). There are four major areas of reporting that the company’s financial statements fall into:
Each of the financial statements has various key performance indicators (KPI’s) that help to monitor the performance of key measurements within the various statements. These KPIs have various levers that drive the KPIs performance. It is the focus on the levers and KPIs that often distinguishes the best-performing companies from the rest. Steps to Understanding, Monitoring, and Controlling Your P&L The success of your business will be highly dependent on the quality of your focus as an organization on understanding, monitoring, and controlling your P&L. Understanding the P&L P&Ls may vary in appearance but a typical P&L will contain performance broken down in summary format by categories such as (GAAP will influence the look of a company’s P&L):
As you are analyzing and reporting on your P&L you will want leaders to understand the following key ratios:
Monitoring the P&L Diligently monitoring your P&L will involve ensuring the following is present:
Controlling the P&L Closely tied to monitoring are the following activities which if regularly executed upon will result in continuous learning about opportunities for improvement to your company’s performance.
Building a culture of financial acumen builds a foundation of repeatable success. Building this culture needs to start early and have continually nurturing to sustain its effectiveness. https://kamyarshah.com #SMBConsultants
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