How do you track profits?
Discussion
We track profits a few ways but none are working well of late.
First most basic way is at the year end, the accountant draws up the year end and gives us the figures.
Obviously this is a long winded way of finding out one final number as it can be 6 mo after YE.
Secondly, we run a spreadsheet around the end of the month for the previous month. However this includes all purchases, sales and other income / costs. Some purchases are stock that might last 3-4 months. So for example, you have £10k of stock in March which actually needs to be spread over the following 3-4 months as suddenly your profit for March takes a 10k dive.
How do people handle this? Its difficult to say how long the stock might last.
Also in addition, some of our work requires some stock to be purchased 2-3 weeks prior to the work. So work that is due in say the last week of the month will require a purchase in the month prior and then the invoice might be paid the month after... so you end up with a void.
What would you do? The reason I am asking this is my business partner (wifey) is very much a glass half empty person and she now thinks that last month we made a big loss and I am trying to demonstrate that actually things are not as bad as she thinks.
First most basic way is at the year end, the accountant draws up the year end and gives us the figures.
Obviously this is a long winded way of finding out one final number as it can be 6 mo after YE.
Secondly, we run a spreadsheet around the end of the month for the previous month. However this includes all purchases, sales and other income / costs. Some purchases are stock that might last 3-4 months. So for example, you have £10k of stock in March which actually needs to be spread over the following 3-4 months as suddenly your profit for March takes a 10k dive.
How do people handle this? Its difficult to say how long the stock might last.
Also in addition, some of our work requires some stock to be purchased 2-3 weeks prior to the work. So work that is due in say the last week of the month will require a purchase in the month prior and then the invoice might be paid the month after... so you end up with a void.
What would you do? The reason I am asking this is my business partner (wifey) is very much a glass half empty person and she now thinks that last month we made a big loss and I am trying to demonstrate that actually things are not as bad as she thinks.
red_slr said:
We track profits a few ways but none are working well of late.
First most basic way is at the year end, the accountant draws up the year end and gives us the figures.
Obviously this is a long winded way of finding out one final number as it can be 6 mo after YE.
Secondly, we run a spreadsheet around the end of the month for the previous month. However this includes all purchases, sales and other income / costs. Some purchases are stock that might last 3-4 months. So for example, you have £10k of stock in March which actually needs to be spread over the following 3-4 months as suddenly your profit for March takes a 10k dive.
How do people handle this? Its difficult to say how long the stock might last.
Also in addition, some of our work requires some stock to be purchased 2-3 weeks prior to the work. So work that is due in say the last week of the month will require a purchase in the month prior and then the invoice might be paid the month after... so you end up with a void.
What would you do? The reason I am asking this is my business partner (wifey) is very much a glass half empty person and she now thinks that last month we made a big loss and I am trying to demonstrate that actually things are not as bad as she thinks.
Ahhh been there, fixed that.First most basic way is at the year end, the accountant draws up the year end and gives us the figures.
Obviously this is a long winded way of finding out one final number as it can be 6 mo after YE.
Secondly, we run a spreadsheet around the end of the month for the previous month. However this includes all purchases, sales and other income / costs. Some purchases are stock that might last 3-4 months. So for example, you have £10k of stock in March which actually needs to be spread over the following 3-4 months as suddenly your profit for March takes a 10k dive.
How do people handle this? Its difficult to say how long the stock might last.
Also in addition, some of our work requires some stock to be purchased 2-3 weeks prior to the work. So work that is due in say the last week of the month will require a purchase in the month prior and then the invoice might be paid the month after... so you end up with a void.
What would you do? The reason I am asking this is my business partner (wifey) is very much a glass half empty person and she now thinks that last month we made a big loss and I am trying to demonstrate that actually things are not as bad as she thinks.
Exactly the same issue, I own an ecommerce company, we buy stock daily but it's not always sold in the same month, plus our accounting system doesn't track the stock shift thus it looked like we were making a loss regularly. Very depressing and there's no way I'm waiting till months after year end to figure out if I've made any money or not.
Now I use a cost of goods sold method and track stock shift in a spreadsheet. I can see month by month true profit/loss regardless of how much stock I buy. It's been a significant improvement, best thing I ever did to be honest as we're constantly growing stock so it just felt like we were getting worse off when in reality we're doing pretty well. Seeing all the figures each month helped fine tune things and now we're making more profit than before. Win win!
I joked that I should sell the spreadsheet as it's really useful haha.
Do you want me to send you a copy to see if it works for you? If so drop me a private message with your details.
You need to enter turnover, cost of goods sold, expenses and a stock figure at the end of each month. The rest calculates for you.
red_slr said:
Obviously this is a long winded way of finding out one final number as it can be 6 mo after YE.
Secondly, we run a spreadsheet around the end of the month for the previous month. However this includes all purchases, sales and other income / costs. Some purchases are stock that might last 3-4 months. So for example, you have £10k of stock in March which actually needs to be spread over the following 3-4 months as suddenly your profit for March takes a 10k dive.
How do people handle this? Its difficult to say how long the stock might last.
Also in addition, some of our work requires some stock to be purchased 2-3 weeks prior to the work. So work that is due in say the last week of the month will require a purchase in the month prior and then the invoice might be paid the month after... so you end up with a void.
What would you do? The reason I am asking this is my business partner (wifey) is very much a glass half empty person and she now thinks that last month we made a big loss and I am trying to demonstrate that actually things are not as bad as she thinks.
For forecasting sales the simplest way is to look at your sales history on a monthly basis and apply a percentage uplift or reduction. Personally I like to see 3 figures for each month: pessimistic, realistic and optimistic. There are lost of other strategies for sales forecasting and I am by no means an expert but if you get the basics done you can revisit and refine your forecasts later on.
We now have monthly management accounts and the accountants send a book keeper out one day a month to do them - usually 5th ish.
We then discuss them and the book keeper highlights anything of note, our accountant might call to discuss points but it’s changed how we cost jobs and run the biz.
We then discuss them and the book keeper highlights anything of note, our accountant might call to discuss points but it’s changed how we cost jobs and run the biz.
red_slr said:
Thanks PM sent, that's basically the same issue we have. I know we will make money down the line but I just need to demonstrate it. I have done some rough calculations this afternoon but I want something better going forward that I can be confident with and also keep Mrs SLR calm!! 
Sent you a copy, hopefully it's helpful for you. It works for me at least Profit is a slippery old bugger.
I have tended to look at companies with challenging cashflow as having 'underlying profits' - the P&L will clearly show if you're making an underlying profit, but will have little relation on actual cash in the bank. Unless you're lucky and running a cash generative/cash positive business.
Do you have a decent accountant?
I have tended to look at companies with challenging cashflow as having 'underlying profits' - the P&L will clearly show if you're making an underlying profit, but will have little relation on actual cash in the bank. Unless you're lucky and running a cash generative/cash positive business.
Do you have a decent accountant?
CaptainSlow said:
A s
t one it seems.
I think you guys need to get yourselves some balance sheets.
A balance sheet doesn't take into account monthly stock shifts though and can also include company assets so you won't get a true profit figure made in that particular month. And if you work it out manually each month you're basically at my spreadsheet level....t one it seems.I think you guys need to get yourselves some balance sheets.
MrSparks said:
CaptainSlow said:
A st one it seems.
I think you guys need to get yourselves some balance sheets.
A balance sheet doesn't take into account monthly stock shifts though and can also include company assets so you won't get a true profit figure made in that particular month. And if you work it out manually each month you're basically at my spreadsheet level....t one it seems.I think you guys need to get yourselves some balance sheets.
Strictly speaking you don't work out COGs by what you have sold but by looking at the stock you have left.
CaptainSlow said:
You can have monthly balance sheets.
Strictly speaking you don't work out COGs by what you have sold but by looking at the stock you have left.
Yeah that was the problem I was having previously, my accounts software doesn't take into account the stock left... the spreadsheets do.Strictly speaking you don't work out COGs by what you have sold but by looking at the stock you have left.
I guess you could update the stock journal monthly then run a balance sheet and get similar results but I did go a little crazy with pretty charts and conditional formatting
MrSparks said:
CaptainSlow said:
You can have monthly balance sheets.
Strictly speaking you don't work out COGs by what you have sold but by looking at the stock you have left.
Yeah that was the problem I was having previously, my accounts software doesn't take into account the stock left... the spreadsheets do.Strictly speaking you don't work out COGs by what you have sold but by looking at the stock you have left.
MrSparks said:
A balance sheet doesn't take into account monthly stock shifts though and can also include company assets so you won't get a true profit figure made in that particular month. And if you work it out manually each month you're basically at my spreadsheet level....
My companies balance sheet does. Our accounting software runs a live stock nominal rather than the opening and closing stock method used by Sage etc. So our balance sheet shows a stock movement figure. You need an decent accounting system that includes a stock management system.
When you purchase stock it updates the detailed stock ledger and the balance sheet, likewise when you sell it.
This means your cost of sales is accurate, your margins are available by product and in total and you will have accurate visibility of your current financial position.
If you run your own business it’s imperative you have a financial system that provides prompt reliable information for you to base decisions on. Seat of the pants management might work short term but will eventually be a critical risk to the business.
When you purchase stock it updates the detailed stock ledger and the balance sheet, likewise when you sell it.
This means your cost of sales is accurate, your margins are available by product and in total and you will have accurate visibility of your current financial position.
If you run your own business it’s imperative you have a financial system that provides prompt reliable information for you to base decisions on. Seat of the pants management might work short term but will eventually be a critical risk to the business.
plasticpig said:
My companies balance sheet does. Our accounting software runs a live stock nominal rather than the opening and closing stock method used by Sage etc. So our balance sheet shows a stock movement figure.
That's pretty cool, I use Kash Flow, knowing my luck it probably has that feature To be honest my spreadsheet does a lot more than what the accounts will do, I like being able to see each month in one view and I have sums to compare last year to this year and plot growth, I also have a projections sheet that can generate potential figures based on a target growth percentage added to last years figures. So I find it a really useful tool even if the accounts software does the stock shift.
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