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Reading your finance report - 3 - (budgeting, profit)

In my most recent blogs we looked at which numbers in the finance report we need to focus on, and what we can compare those numbers against.

I often look at reports with a red highlighter in one hand, and a green one in the other. What do I like, and what do I like less?

Once we have highlighted what we like, or what worries us, we need to ask three questions.

"What has happened to cause it?" Whether it's working for us or working against us, if we don't understandwhy it has happened, we can't do anything about it. It's just good luck, which we can't repeat; or bad luck that will probably happen again.

"What are we going to do about it?" What do we need to do to stop it happening if it's working against us, or make it happen again if it's working for us?

In my last blog I highlighted the 10 important lines of information that we need to be looking for in our financial report."What do we focus on?"

But what do we do with those lines, once we have found them?

We compare them.

It's usually worth comparing the actual numbers against the budget for this month; last month's numbers; and the numbers this time last year.

But be careful!We must always think about the validity of the comparison.If the budget was agreed before Covid, comparing the actual numbers for a month in Covid, against the budget that

didn't foresee Covid will probably be misleading.

Covid will make a comparison against the previous year misleading as well.

In a highly seasonal business, comparison against the previous month may not be helpful.Try comparing January sales of Christmas crackers against December sales…

And when I'm comparing, I'll look at three elements of the numbers.

Ho

Reading your finance report - 1 - (budgeting, profit)

Quite often I find people confused about how to read their financial report.

There are a couple of things to understand about financial reports.One is that they usually contain far too much detail.Another is that their purpose is simply to point to where things are happening in the business.Things that need our attention.

In this blog I'll deal with the problem of detail.

It's usually a mistake to start at the top of page 1 and work our way down each page.I usually take a highlighter and look for the most important lines of information.I'll start by finding:

· income or sales

· total costs

· profit

This gives me an overall picture of how things stand.

Then I'll look for the 5 most important costs.These tend to be the big costs, but could also be things that, if they get out of hand, could damage our budget beyond hope.They'll be different in every business, every cost centre, and every project, but will usually include salary costs.

So far I've only looked a