In the last week, I've done a number of presentations to business owners around the Wellington region. And thinking through the sessions afterwards, I realised just how limiting the focus on a business's profit and loss account really is.
When it comes to managing small business finance, most people focus on their P&L account. That makes sense, it tells them how their income and expenditure is building up, their current profit (or loss) balance to date and they can allow for the income tax liability on the profit. And, if they've created a budget, it will show how things are tracking against that budget.
But that's about it.
The P&L account does exactly that:
Other financial statements, like the Balance Sheet and the Cash Flow statement, have the capacity to provide more information, but it is the analysis and review - the management accounting - that will provide the answers to the questions that business owners actually most need.
The most used financial report - the P&L - just isn't enough.
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