Financial Statement / Profit and Loss statement

[krammer]

Hi folks,

First of all thanks a lot for the responses regarding my question around managing profit, Contribution margin etc for our products. On similar lines
I was talking to one of my friend and he referred to me regarding the P/L statements, financial statements which would give the health of an org. This was something I had in mind.I want to start calculating the P/L starting from June. Right now I am doing the ground work of getting Profit margins for various products, gathering overhead costs,expenses etc. Can you please point out to me the easiest way I can go about coming up with the P/L for the month of June. Are there any templates or formats which I can use and plug in the values as per our numbers.

TIA
K

[Freelancier]

Once you start getting into reporting, you need tools and not templates. How has the business functioned this long without an accounting package to track payments to vendors, invoiced sales, taxes owed, etc.? I think we're missing something here.

[krammer]

Thanks for the quick reply. The information were (payments to vendors, invoiced sale,expenses) collected in a ledger book but nobody in-house really cared about computing the P/L. I just have the raw data which needs to be tweaked.Are there any tools you can point out or whatever is required for the same.

K

[ArcSine]

Aye, K, what you're asking here is essentially.....accounting. Plain ol' accounting, which (oversimplifying) is the process by which the underlying data regarding your daily transactions and activity are captured, summarized, and then presented in the form of reports. The primary end result of the accounting process are the two familiar financial statements, the Balance Sheet and the Income Statement ("P/L"). Some folks fancy it up with a third financial report, the Cash Flow Statement.

That's the what, but as to the how, you might...

• Obtain and spend some time getting familiar with a simple bookkeeping / accounting software system. QuickBooks is the one favored most often by nonaccountants, but there are others. These programs have done a pretty good job of making them usable by nonaccountants, but there's no escaping the reality that the more bookkeeping knowledge you have, the more performance you can get out of these programs.

• Hire a bookkeeper to produce the balance sheets and PnLs from your transactions data. It could easily be an outside, independent bookkeeper who does the number-crunching from their own office, provided you can efficiently get the data to him/her (emailing spreadsheets, e.g.).

• Combination of the two, whereby you hire a bookkeeper to help you get up and running with QuickBooks or one of its brethren, and then transition to doing more of the bookkeeping in-house yourself as you develop your QuickBooks groove.

Obviously the optimal path depends on how you see your role evolving with the company. If you're wanting to become more of the outfit's chief financial officer, you'd wanna first beef up your bookkeeping chops and (perhaps with a bookkeeper at your elbow for a time) do more of the stuff yourself, just to get familiar and comfortable with the number-crunching. You can later ramp up the bookkeeper to a full-time position and offload some of your bean-counting grind to him/her, and start focusing on bigger financial pictures. But if something else (such as being the firm's resident marketing guru) is in the cards for you, then you'd want to just take steps to get a full-on accountant (an outside CPA, perhaps) to handle all the bookkeeping & accounting stuff.

Ques: How have the company's tax returns been handled to this point? Typically some form of accounting has to be carried out before the returns can be prepared; who's been playing that role?

[Freelancier]

I think the order I would handle this is:

Get an accountant for the business. If an accountant already exists for the business, fire him/her, since that person should have been looking out for the business a whole bunch better.

Once you have the accountant, take the ledgers to them and explain that you need to start getting their records into electronic form so that you will have the necessary data and reports to make decisions about the business. Get the accountant to suggest an accounting package that you should immediately consider purchasing AND a bookkeeper to help get your paper records into the accounting package.

Once the bookkeeper has the data in the accounting package, many of your questions are going to be solved by the accounting package.