A business cannot get where it wants to go without a basic accounting statement: the Profit & Loss. Utilizing a P&L helps create a map. To many of us, nothing sounds more wicked, horrible and challenging than willingly embracing a P&L any more frequently than we absolutely have to. But the P&L should be your best friend. You can find even more down and dirty information on the P&L in my book 'But Are You Making Any Money'.
A typical P&L is comprised of revenue (the amount of money you take in), expenses (the amount of money that you spend generating revenue), and profit (the money that's let over after all of your expenses have been paid -- think of the juice you managed to squeeze out of those tomatoes in the strainer). Companies generally produce P&Ls monthly and annually.
You've probably heard rules of thumb about construction: plan to spend twice as much and have the project take twice the amount of time the contractor quotes. The same goes with travel: plan to have that vacation be a lot more than just the airfare and the hotel. Somewhere along the line the expenses for tips, scuba lessons, souvenirs and meals just seem to creep up and up. Why? Life. It just happens.
There are two key points most business people miss -- the importance of tracking employee time (including your own) and uncovering hidden expenses for each project. And now we reach the fork in the road.
To Code Your Way t0 Cash (which I talk about in detail in my book), you are going to have to:
- Create a job code for every job.
- Organize your project expenses for each job into one of four categories - A, B, C or D.
- Code your revenue by job.
- Print your P&Ls by job code after completion of each job, for analysis.
These steps will lead you to an accurate picture of how much money you really make per job.
"But wait!" you're saying, "I already have monthly P&L and annual P&Ls for my business and I still don't have enough money at the end of the month!"
Let's face it, most companies don't receive these P&Ls often enough or soon enough to course correct. If you don't look at your monthly P&L on a regular basis and actually pulled it apart, the expenses and income would be fresh in your mind. Clearly, errors would be more obvious because they would all be in recent memory.
Unless you take the time to review your P&Ls regularly and frequently, these kinds of expenses won't jump out at you and you can't correct your errors. You don't know to consider changing your calling plan or to have the receptionist reimburse you for those lengthy, flirtatious international calls.
Imagine how much more effective you could be if you looked at the P&Ls on a per job basis, once a week, for everything you've got in process. By assigning a job code to everything and creating P&Ls for each project , you can course correct much, much more easily. P&Ls printed by job provide the clarity and knowledge you need to most profitably and effectively run your business.
Like it or Love it? Please comment below!