Account Ability: Financial Mastery is the Same Worldwide
I have just returned from a three-week trip where I presented programs for a client in India, the Philippines, Malaysia, and Singapore. I then went on to present two additional programs for a client in Australia who has many multi-unit restaurant owners. My mission was to present our Profit Mastery curriculum to them to drive up their financial acumen and introduce them to our online curriculum.
You might think that the financial issues of an owner of multiple businesses in India would be different than those here in the U.S. Amazingly enough, finance is the same the world over. If you can’t get your profit to the gross margin line, it will never, ever drop to the bottom line.
And if you don’t follow the 10 basic processes that allow you to get better information from your financial statements, you will never have the data necessary to manage a business more effectively. Here are the 10 ways to get better information from your financial statements.
- Group your profit-and-loss expenses by category such as sales and marketing expenses, occupancy, etc. and not alphabetically. You would be surprised how many financial statements are so poorly organized that it is impossible to get real data from them.
- Have your profit-and-loss and balance sheet statements produced on a monthly basis. It is absolutely unacceptable to have financial information presented to you, the owner, on a quarterly basis. You are already three months late, so if something bad is going on inside your business you are way behind in getting it fixed.
- Get your financial statements in a timely manner. The minimum acceptable standard for financial reporting today is a monthly profit-and-loss and balance sheet presented to you by the 15th day following the close of business of the previous month, every month. There is no other minimum acceptable standard.
- Have your financial statements reviewed by a CPA on a regular basis, not just at tax time. This is especially important if you are unsure of the quality of the financial information you are receiving from your bookkeeper. In a future column I will share with you the 13 Red Flags to Bookkeeping Fraud, which can help you know if someone is stealing from your business financially.
- If your franchisor has not already provided you with it, create for yourself a point-of-sale system that ties into your financial statements so you know your true inventory numbers.
- Know your real gross margin percentage by knowing your true inventory number. (See #5.)
- Try to minimize what you put into your “miscellaneous expense account.” I have seen many profit-and-loss statements where this account is approaching $100,000. Absolutely unacceptable! You should know where that money is going, because if it’s going to someone else it’s not going to you!
- Avoid having too many categories, or at least have P&L and balance sheet reports that roll up into one page. It’s perfectly acceptable to have many subcategories to provide you with details regarding specific line items. However, it is absolutely critical to have totals that give you the clear picture of where the money is going.
- Have your P&L and balance sheet show both dollars and percentages so you can see whether any changes are caused by changes in volume or true increases in costs, and then compare them to industry standards. This is one of the areas where so many business owners fall short in their financial reporting. Financial information expressed in percentages is critical for competent financial analysis of the trends in your business.
- (And this is the tough one!) If your accountant or bookkeeper can’t do all of the above, get them trained, better advised, or replaced.
Finally, if you have 3 years of data available, the most professional way to organize your financial information is to have the previous 2 years month-by-month compared with your current month, then your previous year data compared to your year-to-date results this year. This gives you the maximum ability to access trends and see where there are opportunities for you to drive up the financial performance of your business.
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