15760 Ventura Blvd, Suite 610 Encino, CA 91436
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15760 Ventura Blvd, Suite 610 Encino, CA 91436
FREE CONSULTATION818-436-2775
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Personal, Affordable Payroll Services, Bookkeeping, and Tax Processing for Small Business throughout Los Angeles County.

How Timely Financial Statements Can Save You Thousands of Dollars

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You aren’t alone! For over 40 years I have written about small businesses. Here is one of my most important conclusions. Most small businesses pay little or no attention to their profit and loss statement and balance sheet. This failure to keep track of critical financial markers, trends, and problems may be the single largest drain on earnings for any small company.

Susan owns a bakery (not her real name.) She has a fantastic reputation for her wedding cakes and her sales are good, especially in season. She keeps a tight reign on staffing, and knows that her decorators are as fast and efficient as anyone else in the business. But last year she grossed $700,000 in sales, and even though she only took out $70,000 for herself, the company is constantly facing cash problems. She is behind with her vendors, and sometimes has to ask her employees to hold their checks.

Susan only looks at her financials once each year when her tax preparer gives her the tax forms to sign. Even then, Susan doesn’t really know what to look for on her financial statements to determine where the leak in her cash might be. Does this sound familiar?

In the case of this bakery, it turned out her cost of raw materials had gone up about 10% over the course of that year. She hadn’t raised prices. With raw materials representing about 20% of her sales, her profit was impacted by $14,000.

Additionally, she had experienced an employee accident the year before. Because of this accident and an increase in overall workman’s compensation insurance, her cost in this one category had increased by $1000 per month. And there was an annual charge to cover the previous years shortfall of $5000. Another $17,000 surprise!

A bakery grossing $700,000 should be able to generate at least $120,000 for the owner through a combination of pay, benefits, and net profit. Susan realized that the other $20,000 was in benefits to her, such as a company car and some travel/entertainment that was “mostly” business. But it was a real wakeup call that she had left $31,000 on the table.

She now had some choices. She could raise prices, renegotiate the workmans’ comp insurance, work harder to find less expensive sources on raw materials, or look for other places to cut. She was able to recover that $31,000 and more in the following year. But here is the rub …

Had she spent 30 minutes a month reviewing her financials, these changes in her expenses would have jumped off the page. She could have made changes immediately and saved most of that money. Money leaks out of companies in many, many ways, but those leaks will almost always show up in the monthly statement. Here are just a few of those ways:

  • Overhead costs go up
  • Payroll goes up compared to sales
  • Payroll taxes go up
  • Insurance goes up
  • Raw material or cost of goods goes up
  • Margins reduce
  • Product mix changes with lower margin items increasing compared to higher margin items
  • Theft losses
  • Old product loses value
  • Scrap increases
  • Interest payments increase
  • Drop in income from payables discounts
  • Bad debt

 

If your bookkeeper is not currently providing you with monthly statements showing you your profit and loss and your balance sheet, you may want to call Maya Konviser at ATPP. Her company specializes in helping small companies create simple and inexpensive bookkeeping solutions that could add substantially to your bottom line.

 Call now: 818-436-2775