1. Measure what’s important
Think about the type of information you find most useful when you’re measuring your business performance and making decisions. If you sell a product or a service, can you clearly identify the income they generate? Likewise can you identify the related cost of providing that product or service? By clearly defining this, well-designed profit and loss statements will allow you to easily calculate the gross profit per product or per service, enabling you to assess which are worth focusing your energies on.
2. Use plain English
Use terms that you actually understand. If you don’t recognise a term, change it to something that’s meaningful to you.
Keep like accounts grouped together so they can be sub-totalled easily, and so reports can be viewed at a higher level. In the same way you can drill down through Google Maps, your accounting software should allow you to drill down from a high-level view to several levels of detail below.
In MYOB, I typically like my clients to set their default view of reports at a level-2 customisation, which means that when they look at expenses they see the headers (provision, promotion, place, and people). If they need further information they can drill down, or customise to a lower level of detail. This approach removes the noise of many lines of information, so the business owner can quickly see meaningful summarised financial information.
If your accounting program has generated account lines that you’re unlikely to ever use, get rid of them. If you’re splitting up expenses between telephone and mobile phone for example, and it’s not providing you with useful information, combine the accounts, remove the clutter and spend less time coding.
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5. Question how information is presented
Your accountant may generate your financial reports in alphabetical order, but that’s unlikely to be useful to you. Don’t be constrained by the alphabet; feel free to organise your reports in the way that is most meaningful to you – after all, that’s what’s most important to your business.
6. Allow for growth
When creating new account lines, plan for growth at the outset. If your new range of health food bars really take off, it may be more manageable to have them categorised by the generic term “Health food bar sales” than to try and identify each of them as a separate line item within the profit and loss statement.
Smart accounting processes add up to time saved and better decisions made.
Have you got any tips of your own for energising profit and loss statements?