The $600 toilet lever
Looking at my Income Statement one day I noticed utilities had increased significantly year over year – utilities never change much. After investigating, I found a single toilet lever constantly tangled leaving the tank continuously filling and draining.
By the time I looked into it, a $2.99 toilet lever had cost $600.
That day reminded me, no matter how big or small the organization every single month the most important management step that every Owner, Manager or GM needs to do is look at the Income Statement (Profit & Loss Statement) for the current period compared to the same period prior year.
You are just looking for unexpected changes in amounts. In my case, Utilities had jumped up year over year in a category that rarely changes much.
Look for unexpected changes in Revenue, Cost of Goods Sold, Gross Margin, and each of your Advertising, Overhead and Payroll accounts.
If you see something unexpected, insist on an explanation from the relevant staff members.
Early on as an accountant this process spotted big frauds at one of the biggest companies in the world.
Watching the changes will also alert you to important changes if Gross Margin is increasing or decreasing. For those that were watching, they saw the 2008 recession unfolding and were able to adjust before it was too late while others were not so lucky.
By simply looking for unexpected changes you will catch issues before they grow and react to changes in your organization as they unfold; and you don’t need to be a CPA to do