Why P&L Analysis must be done EVERY MONTH?

One of the best management practices, most of the smart CEO or business head use to do every month is review P&L (Profit & loss) statement along with the key people. In fact, some organizations have a habit of reviewing P&L before 10 the of every month and accordingly all the financial accounting is completed, and the process of bill collection and accounting is set in place.

Benefits of doing P&L Analysis every month:

1. As a business head, notionally, you come to know the business profitability either positive or negative in the month .that give you more response time to take countermeasures in the subsequent months.

2. Analysis of P&L every month will give you a lot of insight about your profitable product mix. For example, in one month, an organization made High turnover compared to the previous month, but the Operating margin is lesser than the previous month. When analyzing the expenses, there is not much variance between months. However, when the team analyzed further on the product mix, they realized that even though they produced more of a particular product, say X, the price was low. The team had realized that more you produce product X, more loss the organization makes. This kind of analysis will give a lot of insight about your product mix and accordingly, you can take a call on optimizing the product mix.

3. Also, when you analyze P&L along with cost variance of each expense, that improves the cost consciousness in the organization, and in fact, you can take countermeasures to control the cost. We are witnessing in many organization,, where the business head reviews the P&L every month, the culture of the organization also moves towards cost consciousness.

Limiting factors of not doing P&L review every month :

1.one of the reasons people use to say is P&L statement may not reflect the real numbers as there is variation in inventory accounting, tax provision, depreciation, etc.

Yes. As said this P&L statement is just notional and indicative of your operational performance only. In the year-end, with all provisions, your auditor will make right P&L including right accounting principles. This monthly P&L will give you an instant picture of your business performance so that you can take timely actions.

Regarding inventory accounting, when you regularly do every month, will get eventually normalised. You need to ensure that you are using a standard format and input/output mechanism and the source must be the same. For example, if you are using TALLY software, use the same source and format/assumptions to prepare P&L statement every month

2. Lack of discipline on accounting all the bills on time and preparing P&L statement on time.

Rather than blaming the people and system, it is the discipline of the business head in showing interest to analyze the P&L every month before 10th matters a lot!!



The point is reviewing P&L analysis is a prime responsibility of business head, and it must be done every month for taking corrective action on business performance on time!