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Bitesize No. 22 – Get to Grips with the Profit and Loss Account

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Any aspiring business partner needs to be totally confident and comfortable with the most fundamental building block of management – the profit and loss account (P&L). This is a here-and-now statement of how the organisation is performing. Of course, it is also open to misuse and abuse, like many other accounting practices and conventions. Let us not forget the Enron, WorldCom and Parmalat examples of how not to manage a company’s accounts.

Understanding a P&L is a minimum requirement if a business partner is to be taken seriously by a line manager. However, it can offer so many other opportunities for the business partner to really show what a difference they can make.

For a start, the line manager will probably have had some say already in how the P&L is constructed. The costs they have to work with are probably the same costs they submitted in their own budget some months earlier. However, most line managers will allow themselves as much room for manoeuvre as they can and will try to build in or hide extra money in case they ever need it. So the business partner has to try and find out the real picture. Just because a manager says they need a cost does not mean it cannot be reduced.

Similarly, on the revenue or productivity side, what manager is going to over-predict what sales or output they are likely to achieve? Their bonus may well depend on showing an improvement over and above their target, so the target will be minimised if they can help it.

Business partners need to be able to ask intelligent questions about what is possible. Training and development can only add value if there is room for improvement and managers will only support you if they are convinced that there is room for improvement themselves and, hopefully, it will enable them to produce a shining performance themselves.

P&L’s are here to stay but that does not mean the business partner has to accept them at face value.


Paul is happy to take questions and comments and can be contacted at:mailto:[email protected]
Earlier articles in this series can be found at:
The Bitesize Business Partners Page

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