It’s the all-important question for every business owner: will I make a profit this month?
A few years ago, I was talking with a prospective client who was describing the difficulties she was having with her control. She was frustrated over the usual stuff: untimely monthly financial reports, lack of confidence in the numbers, you name it.
I listened and wondered where this was coming from. Finally, she told me she doubted whether the reports were worth the paper they were printed on.
Her frustration turned to resignation, and she said, “All I want to know is if we’ll make a profit this month or not.”
Bingo. An epiphany. No more worrying about fancy KPIs, complex reports, or over-engineered spreadsheets. Just answer that one question every month, without fail, but with confidence.
The client had a handle on sales. She knew what employees were working on, but she didn’t know what the controller was or wasn’t doing to get the books closed, and the reports were always late.
Worse, the controller could not explain (in plain English) what the month’s results were.
My client wanted to skip the gory details. She needed one answer.
So how do you go about answering this crucial question?
1. Begin with the end in mind.
If you have goals and expectations, it’s time to build processes and a workflow to achieve whatever the owner wants. It could be one number, one report, or 5 KPIs. Whatever it is, get it on paper and put together processes and systems to feed the data that answers the question.
Once you’ve gotten started, the real work begins:
2. Tighten up the month-end closing process
Get a system and a checklist together to reasonably estimate how long it takes to close. For a small business, this should be 5 business days or less. Large companies have closing down to 2-3 days, so why not smaller companies? Know the goal and what you need to do, and get it done.
3. Improve the transaction processing workflow throughout the month.
So many companies only enter bills once weekly, when they open the mail. This can’t happen.
In order to get real-time numbers coming out of your financial system, you need a workflow that supports entering data on a timely basis. That means you enter whatever came in today’s mail. If you made deposits today, enter the data today. If you’ve got bills from vendors, enter those ASAP. There shouldn’t be more than a next-day delay. That’s all there is to it.
4. Have a budget in place
Start simply. Divide your annual budget into 12 buckets so you can see your monthly expectations as well as a “plus/minus variance”. Add up what went above and beyond the budget (always using the budget as your base) or adjust downward for things that fell below your expectations when you prepared the budget. This analysis will help you understand directionally whether you are going to finish above or below budget, which leads into a regular forecasting process. Your budget sets the expectations for the entire company.
Ready to clear up your monthly profit questions? Contact TurboExecs today!