Running a business or organization is challenging enough without losing money you didn’t even know you were losing!
Profit leaks—small, unnoticed losses—can quietly drain your bottom line.
There is a solution – using your basic reports in a new way.
At ControllershipPLUS we take pride in highly accurate reports. Reports and numbers you can trust. There is nothing more irritating than going through your monthly reports and having that gnawing gut feeling that things are just “not quite right”. That never happens with our reports.
Starting with accurate, reliable reports, you can shine a light on profit leaks and plug them before they get out of control.
Let us dive into how financial reports can help you keep more of your hard-earned profits…
What Are Profit Leaks?
Profit leaks are those small, sneaky drains on your finances that might seem insignificant at first. Maybe it’s a supplier charging a little more each month, or uncollected invoices piling up.
Over time, these tiny leaks turn into major drains. If you don’t track them, they can seriously cut into your profits. The good news? Financial reports are like a magnifying glass for finding and stopping them in their tracks.
Especially ControllershipPLUS reports that are accurate, reliable, and timely.
The Reports You Need
Not all reports are created equal. Some are perfect for spotting leaks. Here are the key ones to keep an eye on:
- Income Statement (Profit & Loss): This is the big one. It shows all your revenue and expenses. If costs are going up but revenue isn’t, you’ve got a leak. Look for rising expenses that don’t add value, like bloated overhead. Overhead is especially problematic because most overhead costs are fixed and so do not go down when revenue drops.
- Cash Flow Statement: This report shows how money flows in and out of your business. If you are making sales but still struggling with cash flow, you have a problem. Cash leaks here could mean you are paying out more than you should or not collecting money fast enough.
- Budget vs. Actual: Think of this as your business’s reality check. You planned to spend a certain amount on marketing, but somehow it doubled? That’s a leak. This report shows exactly where your actual spending is veering off from the plan.
- Accounts Receivable Aging: If customers aren’t paying you on time, that’s cash you are missing out on. This report helps you track overdue invoices and reminds you which clients need a little nudge to settle up. We use a software for many of our clients to help stay current with our client’s receivables.
Where Leaks Happen
Now that you know what to look for, where do these leaks usually show up? Here are a few of the most common areas:
- Overhead Costs: Office supplies, utilities, rent—overhead costs creep up if you are not watching. Regularly reviewing your overhead expenses helps you find areas to cut back. Can you switch to energy-saving utilities or renegotiate your lease? Every little bit helps.
- Labor Costs: If you are paying out more in wages but not seeing a boost in productivity, that’s a red flag. Maybe some roles are overstaffed, or employees need better training. Tracking labor costs as a percentage of sales will show you where the imbalance is.
- Inventory Management: Holding too much inventory ties up cash that could be better used elsewhere. Not enough? You’re missing out on sales. Keep an eye on your inventory turnover rates to avoid stockpile buildup or missed revenue opportunities.
- Supplier Costs: Suppliers may slowly raise prices over time. If you don’t review these costs regularly, you might end up overpaying. Check your vendor agreements regularly and do not hesitate to negotiate for better deals.
- Operational Inefficiencies: Rising operational costs—like manufacturing, delivery, or logistics—are another common leak. Are there tasks that could be automated or outsourced? Use your cash flow statement to pinpoint where you’re spending too much on day-to-day operations.
How to Plug Profit Leaks
Once you have found the leaks, it is time to plug them. Here is how to take action:
- Set Benchmarks: Use your financial reports to set performance targets for each part of your business. For example, cap overhead at a certain percentage of total revenue. Compare regularly to see if you’re hitting those targets and course-correct if needed.
- Review Regularly: Profit leaks do not fix themselves. Commit to reviewing your key financial reports—income statements, cash flow, budget vs. actual—at least once a month. The earlier you catch a problem, the easier it is to fix. This is why one key deliverable with ControllershipPLUS is having a monthly meeting to go over everything from the past month and year-to-date so course corrections can be taken.
- Use the Right Tools: The best way to stay on top of everything is with the right tech. Cloud-based accounting platforms like Xero let you run reports anytime and from anywhere. They also automate a lot of the reporting process, giving you real-time data so no leak goes unnoticed.
- Involve Your Team: You cannot do it all alone. Share financial reports with your department heads and managers. When they see the data, they can take responsibility for their budgets and help keep costs down. Accountability goes a long way in preventing leaks.
It is Better to Outsource Your Finances Than Do It Yourself
Financial reports are powerful, but digging through them and figuring out what they mean can be time-consuming. That’s where a trusted accounting partner, like ControllershipPLUS comes in. We analyze your reports, spot profit leaks, and give you actionable insights—so you can focus on running your business, while we handle the numbers.
Conclusion – Protect Your Profits
Profit leaks are the hidden enemy of every business, but they do not have to be a fact of life. By using financial reports to keep a close watch on your expenses and revenues, you can spot leaks early and plug them before they grow. The result? A healthier bottom line, smoother operations, and more money in your pocket.
Thanks for reading…