P&L management is one of those accounting processes that goes unnoticed until there’s a problem. In many companies, P&L management is often delegated to bookkeepers or other non-accounting team members who are expected to know what needs to get done and when. P&L management is one of the most important parts of financial reporting as it helps businesses measure their profitability at different points in time. Check out this blog post if you want to know more about P&L account reconciliation process. If your organization has an average handle on P&L management, read on for three suggestions on how you can improve your process with the help of an accounting software:
Measure P&L variation on a monthly basis
Measuring P&L variation on a monthly basis is a great way to keep track of the health of your business and ensure you’re operating at full capacity. This can also be helpful when it comes to budgeting and forecasting, which is why it’s important to measure monthly P&L variation. Most businesses operate on a monthly basis, with inventory, revenue, and expenses all tied to the month they occurred. When you operate on a monthly level, you have the advantage of seeing variations in your P&L account at a monthly level as well. This means you can react quickly when there are significant changes in your P&L, which is important when it comes to maintaining cash flow.
Automate P&L task workflow
If you’re still doing P&L management manually, it’s time to take a step back and figure out what’s holding you back from automating your process. Automating your P&L management process will allow you to standardize your process, making it easier to onboard new team members, train existing staff, and increase consistency. Automated P&L processes are often tied to your accounting software, and can help you save hours each month by streamlining your workflow. For example, if your business has tons of fixed assets, you could create a workflow for fixed asset P&L management. This could involve initialising the asset on the accounting software, recording depreciation, calculating the P&L accrual, and then finalising the asset at the end of its useful life.
Utilize data to identify trends and offset risk
It’s important to look at P&L data on both a monthly and yearly basis. If you only look at P&L data on a monthly basis, you won’t be able to identify long-term trends in your business. For example, if you see that one particular product line is experiencing higher COGS than normal, you’ll want to see if this is an isolated incident or a trend that’s happening across other product lines. This is where P&L data on a yearly basis comes into play. If you notice a trend, you can act on it before it starts impacting your business. You can also use data from your P&L account in a number of ways to offset risk, such as identifying potential losses from bad debt and insuring against them.
Create a Governance Process (and stick to it)
Depending on your business, you may need to put together a governance process for your P&L account. A governance process is a document that outlines who is responsible for what, and how often certain tasks are completed. A P&L governance process is especially important in public companies where there are strict P&L management rules and regulations. You can create a P&L management governance process by first identifying what needs to be accounted for. For example, if your business is capital-intensive, you’ll want to account for your assets in your P&L. Similarly, if your business has a significant amount of operating leases, you’ll want to account for those as well. You can also identify what data needs to be reported and when. For example, you can create a P&L account that needs to be updated at the end of each month.
Implement Quality Controls
Quality controls are a great way to ensure that your P&L account is accurate. A common example of a P&L quality control is checking your P&L account balance against your general ledger. This is a great way to catch mistakes and make sure your P&L account is accurate. Another way to implement quality controls is to periodically audit your P&L account. Auditing your P&L account on a regular basis is a great way to make sure your account is accurate, and it also serves as a good reference point in case anything ever comes up in your annual audit.
Define clear responsibilities
Last but not least, it’s important to define clear responsibilities in your P&L management process. For example, if your business has a CFO and an internal accountant, you’ll want to make sure they both know what the other one is responsible for in the P&L account. If your accounting software has the ability to assign roles and responsibilities, you can incorporate those into your P&L account. This will help streamline your process, making sure everyone knows what they’re responsible for.
P&L management is one of the most important accounting processes, and one that goes unnoticed until there’s a problem. It’s important to measure P&L variation on a monthly basis, automate your P&L task workflow, and utilize data to identify trends and offset risk. Lastly, it’s important to define clear responsibilities in your P&L management process, and implement quality controls to make sure your P&L account is accurate.