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Analyze Then Maximize: Make the Most of Profitability Reports

Oct 16, 2017 | By Seth David | 0 Comments

Topics: Core, Profitability, Product Features & Updates, Reports

If you’re in business to make a profit, then you’ll want to know how to run firm profitability reports in BQE Core. All too often we gauge our profits simply by looking at what's in the bank. As long as there's money in there, we don’t worry. Of course this is a terrible way to run a business.

There are a few reports that you should get in the habit of looking at regularly in order to analyze and maximize profitability in your firm. And by regularly, I mean, make an appointment on your calendar every week or month and set aside the time to review these reports.

It’s Accrual World

It’s important to look at your reports on an accrual basis. A cash basis is generally only useful for filing tax returns, and you cannot run your business using this method. It leaves too much out of the picture. It ignores your receivables and payables, which means a good chunk of your cash flow isn't taken into account.

Profit and Loss Comparison Accrual Basis

It is also extremely helpful if you have some kind of a benchmark to which to compare these reports. One way of doing this is to compare last year with this year. This kind of side by side comparison can often shake out anomalies. Having a benchmark will help you to identify and correct bookkeeping errors. Assuming any anomalies you find aren't based on bookkeeping errors, the analysis provides powerful insights as to what happened. 

If the costs went way up from last year to this year while revenues were the same, this is a problem. You’ll need to understand what happened and why so you can correct the issue. Analyzing the comparative report on a regular basis will help you find and address these issues promptly, before they become huge cash flow issues.

On the other hand, if revenues went way up while costs were relatively flat, then you'll want to make sure you understand how you accomplished that. If you can identify the cause then you can hopefully develop a process to maximize it and sustain the increased profitability on a continuing basis.

Monthly Profit and Loss Accrual Basis

The next thing you should look at regularly in order to analyze and increase profitability in your firm is the monthly profit and loss report. This allows you to examine trends and make sure that your data is normalized.

For example, if you pay the same amount of rent every month, that amount should show up each month on the rent line item with 100% consistency. What you may find when you look at a report like this is that you have some months with twice the amount and others missing the rent item. If this happens, it’s because the rent expense is coded as the payments clear the bank account. This is a common error. To correct this, enter bills on the first of each month (automate them) and then apply the payments to the bills. This way you have your data normalized.

This is important so that you can analyze the monthly profit and loss properly. This shows you how much you earned and what it actually cost you to run your business each month.

Now you can analyze trends to see where you did well and where you did poorly. Figure out where both the problems and successes came from in order to respectively avoid or replicate them in the future.

For example, you might see that an increased advertising expense one month consistently leads to a bump in revenues a month or two later. This is a good sign that something you did worked well.

The goal is to identify those opportunities and learn from them.

Profit and Loss Accrual by Project

We’ve analyzed the firm profitability reports above. Now it’s time to dig deeper into the source. You’ve heard the phrase “live life one day at a time.” The weeks, months, and years, then, have a way of taking care of themselves, as long as you make the most of today. Your projects are to your days what your profits are to your life.

In other words, manage your business one project at a time. If each project’s profitability is managed well, then your firm profits will take care of themselves. This of course assumes that your overhead is not out of control, but the prior two analyses should shake that out, if it is.

The profit and loss accrual by project report will help you manage your firm by project. You can see which ones were not profitable, or not as profitable, and start digging into those.

As you are analyzing your projects, you should perform the same two analyses: Which ones did well, and why? Which ones did poorly, and why?

Maximize the Good and Minimize the Bad

The above three reports should give you a very well-rounded look at how to analyze and maximize your firm profitability. The key is the frequency with which you look at them. Look at them once and it can be insightful, but useless in the bigger picture. The more regularly you look at these reports and perform your analysis, the more readily you will pick up on anomalies. This will heighten the impact of the exercise, and thus your profitability.

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