Locating Reducible Expenses
Your profit and loss (or income) statement provides a summary of expense information and is the focal point in locating expenses that can be cut. Therefore, the information should be as current as possible. As a report of what has already been spent, a P and L statement alerts you to expense items that bear watching in the present business period. If you get a P and L statement only at the end of the year, you should consider having one prepared more often. At the end of each quarter might be often enough for some firms. Ideally, you can get the most recent information from a monthly P and L.
Regardless of the frequency, for the most information two P and L statements should be prepared. One statement should report the sales, expenses, profits and/or loss of your operations cumulatively for the current business year to date. The other should report on the same items for the last complete month or quarter. Each of the statements should also carry the following information:
(1) this year's figures and each item as a percentage of sales.
(2) last year's figures and the percentages.
(3) the difference between last year and this year - over or under.
(4) budgeted figures and the respective percentages.
(5) the difference between this year and the budgeted figures - over and under.
(6) average percentages for your line of business (industry operating ratio) when available, and
(7)ย the difference between your annual percentages and the industry ratios - under or over.