Focus On The Large And Variable – Not The Small And Predictable

Focus On The Large And Variable – Not The Small And Predictable

If you have a 30 June year end you’re probably putting the finishing touches on your annual budget. If you are, it’s a good time to have a look at the way you categorise income and expenses.

We see a lot of large and complex reports that can make it hard for a business to keep a handle on what’s going on.

Start by tidying things up by seeing if you can arrange expenses into the three broad groups of service delivery, client acquisition, and administration expenses.

Then see if you can declutter by joining groups of small expenses together. We can only hold so many things in our heads at any one time. If it’s an expense you need to keep an eye on, have a process outside of your normal P&L review to monitor it as well. Schedule a regular detailed review in your todo list.

Xero has a great function where you can easily create P&L layouts, move things around and join lines together as a summary. Give it a try.

As for the big and important things, they can be hard to manage, let alone try to predict. Obviously, income can vary tremendously depending on the nature of your business. Good pipeline reports are critical here.

Of the three groups of expenses I mention above, delivery costs will usually cause you the most headaches. All the more reason to strip away the other two cost types.

Most service firms have trouble balancing demand with staff levels. You need processes that support strong deal flow as well as robust project management and reporting. It’s usually best to be slightly resource constrained and turn down some work. Having one person on the bench has the same effect on profit as two people working on projects.