Frank Blau
Contributing Writer
At various times I have stressed the importance of reviewing a profit & loss statement at least monthly. Let’s take a look at one that is just about right, submitted by a good friend and fellow PHC contractor with a six –truck service firm. Items #15 and 16, flagged with bold capitals, are the only areas that I take issue with, which I’ll explain afterward.
This P&L statement covered a nine-month period. Take a look and then continue on with my article.
Analysis: The first thing worth noting about this P&L is its rich detail. More than 100 line items is about right for a PHC service firm. This enables you to keep a close watch over all categories where expenses could creep up on you unawares.
Notice too that several line items (#19, 30, 44, 47, 53 and 55) involved zero expenditures for the period in question. It could be that money had been spent in those areas in previous years or else the contractor anticipates doing so in the future. In either case it is a good idea to keep line items open. In budgeting, don’t get lazy by assigning a lot of spending to “miscellaneous” categories.
Now to the one area where I helped this contractor slightly reconstruct his P&L statement. In quizzing him about items 15 & 16, I found out that his original dollars assigned to service tech payroll taxes and benefits included both billable and unbillable time. This is a common mistake by service contractors.
However, that portion related to billable hours should be captured under the “labor” category under “Direct Cost of Sales”. The percentage of benefits attributable to unbillable hours ought to remain under the overhead heading.
When revised, the new figures look like the ones reflected in Example One.
This led to corresponding changes under direct cost of sales and in various other subtotals and totals, as reflected in example two (numbers that changed are in boldface and caps).
P&L Statement