Finance
7 min read
Reading a P&L like an operator, not an accountant
Your accounts are built to satisfy a reporting standard. They are not built to help you decide anything. Here is how to re-cut them.
Statutory accounts exist to satisfy a reporting standard. They are honest, auditable, and almost useless for deciding what to do on Monday morning.
Re-cut by decision, not by department
Departmental cost lines tell you who spent the money. They do not tell you what the money bought. Re-cut the same figures by product line, customer segment and channel, and the picture usually changes sharply — often revealing that a well-liked part of the business is being quietly subsidised by a duller one.
Find your true contribution margin
Reported gross margin tends to hide the real costs of serving a customer: onboarding time, support load, returns, payment terms, the account manager who spends a third of every week on one client. Push those costs down into the margin calculation and rank your customers again. The order will surprise you.
Cost to acquire, by channel
Cost to serve, by segment
Payment terms and working capital drag
Support and success load per account
Churn and expansion, by cohort
Then look at cash, separately
Profit is an opinion and cash is a fact — a cliché that endures because it keeps being true. A business can be comfortably profitable and still fail on timing. Model the cash conversion cycle on its own before you commit to any expansion.
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Recognize the problem?
If any of this sounds like your business, a short conversation is usually the fastest way to find out what is really going on.