Why you should be reporting on a job-by-job basis
Matt Byrne
Director
Summary
Most business owners we know will run a profit and loss report for their business on a semi-regular basis (but not regularly enough!). While a profit and loss is a great report, it doesn’t necessarily have enough detail for you to take actionable insights from. After all, a profit and loss report is just the financial outcome of all the underlying actions taking in your business.
It’s hard to look at a whole of business profit and loss and know which line items to dig down on. You may look at a profit and loss report and see that your income, costs or profit are up or down from last period or against budget but because this report is generally for the whole of business it lacks detail and you can’t always know what went wrong or right.
For example, let’s say your business is profitable overall and your profit and loss report is looking good. On face value there isn’t any issues and you don’t think to look further. However, you might have one product/service/customer that is losing you money but it’s covered by others that are making money. Without the detail, you wouldn’t know this and wouldn’t be able to correct the unprofitable product/service/customer and improve the business profitability overall.
Rather than track profitability for your business as a whole, you should be tracking it on a job-by-job, client-by-client or product-by-product basis.
The overarching benefit of reporting on a granular basis like this is that you get sufficient detail to be able to make better, more informed decisions in your business. Here are some reasons why you should be reporting on a job-by-job, client-by-client or product-by-product basis:
Understanding which services/ products are/aren’t profitable
Pretty much all businesses have some products/services that they sell consistently. For example, accountants lodge tax returns, electricians install power points and ecommerce retails sell particular products. Regardless of your business, you’ll have a list of key products/services that you do regularly.
By tracking income and costs (including staff time) on a service/product level, you’ll be able to see which services/products are more profitable and which are possibly losing money. Having this detail will let you dig into those services/products that are underperforming and make the necessary adjustments to your pricing or the way you offer the service.
Understanding which clients are/ aren’t profitable
Every business has ideal clients that they wish they had more of. Equally, every business has clients that they’d be happy to replace. Similar to point one above, reporting on a client-by-client basis will help you identify those clients that aren’t profitable or aren’t as profitable as you’d like and make changes to either improve the profitability or remove the client.
Ensure all costs are recovered
Businesses that have materials or products as part of their jobs need to ensure that they’re recovering those costs from their clients. For example, let’s say you’re an electrician and your staff are running down to AWM or Middy’s for materials to use in the jobs. If you’ve quoted a job and estimated materials costs to be $1,000 but there was some additional work completed and costs were $1,200, you’re effectively losing $200 from your profit if you don’t pass that onto your customer.
As part of tracking job profitability you’ll need to allocate direct costs to each job and you can then compare that with the quote. You’ll quickly find out where you’re not recovering costs properly and can implement process changes to ensure all costs are recovered.
Ensure all time is recovered
The above comments relate to businesses that use materials/products but the principles apply equally to service based businesses where costs are mainly staff time. Keeping timesheets for staff will give you the information to know whether you’re going over budget on particular jobs and will allow you to quote those services more accurately which ultimately should improve profitability.
See what’s working
The above points are focussed on identifying underperforming areas. You can’t always focus on the negative though and identifying those products, services or customers that are profitable and working well is equally important. By understanding what’s working you can then apply that across your business to either offer more of that service/product, identify the ideal client or apply the learnings to other less profitable clients/services.
Final Thoughts
As noted above, reporting in your business is about getting the right information to make informed decisions. Having profitability reports on a job, product or customer basis allows you to identify areas for improvement which will ultimately improve the profitability of your business as a whole.
If you need help putting in place the systems, processes and procedures to start reporting on a granular level, reach out to Day One Advisory and we can point you in the right direction.