Does everyone understand the Profit and Loss Statement, also known as the Income Statement? Sales and growth seem to be the big focus for most companies, regardless of how the bottom line performs. Sure, sales can create growth and expansion, but it can also spell chaos and turmoil. Companies can choke itself financially with growth without preparation. Customer service, staff retention and owner satisfaction can all suffer. How about Cash Flow when a company goes through a growth spurt? Will it drain the company funds or feed the company? New equipment, more staff and higher inventory often are prerequisites of growth.
There are some great reports in QuickBooks that can help an owner manage growth, stay liquid and sane at the same time. The first is to understand the Profit and Loss Statement and to ask yourself if the current model is creating profit? Can it be improved? Will sales solve the profit problem? Or do I need to look at the current cost structure and pricing structure? Is the company carrying too much inventory? What is the right stocking level? The QuickBooks Sales by Item Summary report can show you the movement of each of the products and what is not turning. Why do we need 100 parts of an item that we only sold 1 of all of last year?
Did you know you can setup a forecasts and monthly budgets in QuickBooks? You can and it is hidden in the heading Company, Planning & Budgeting. This is a great tool to use when in a growth mode or when a company is just watching costs. The forecast can be the basis for the Cash Flow Projection. The Cash Flow report is invaluable for any company that is growing and they want to predict the crunch months.
Keep becoming a student of Profit and Loss, Balance Sheet, Forecasts and Cash Flow reports. Get to know your industry best of benchmarks and set sail for those markers. Be a student of inventory because it has a large affect on meeting the customer's expected delivery time and, if to high, can drain off valuable cash flow.
