One of the critical principles behind accounting statements is that revenues are matched with the related costs of providing the products or services from which the income is derived. This means that if the business reports its results monthly, all the costs of production/goods purchased for resale/service recorded in that month are relevant to sales made in that month allowing you to understand the true return on all of your sales.
This enables the profit of the business activities to be properly measured, whether that is over a time period, by a product group, by market sector, or by customer.
How does your business measure up?
Review your business against this best practice benchmark now
BEST PRACTICE BENCHMARK: We understand the true costs of our products and/or services, which enables us to accurately review our return on completed sales each month. #Financial-Management
Here’s a checklist to help you determine how well your business meets this benchmark.
- We calculate the level of stock or work in progress at the end of each month.
- We ensure that all direct costs related to revenue are recorded in the same time period that the sales are made.
- We know what is the total cost of our direct labour per unit, after allowing for wage on costs, leave and non-chargeable time.
- We ensure that our overhead costs are recorded in the time period in which they are incurred
About the SMART-Connect best practice financial management advisor
Financial Management Advisor and CFO
Robin Snelling is a Virtual Chief Financial Officer or CFO, with 40 years of corporate and small business experience. He's passionate about creating reports which reveal the guts of the business – which sections are inefficient, what product groups are most profitable, what sales channels are performing, which customer markets give the best return.
Robin is a founding member of the Association of Virtual CFOs, which has the goal of promoting the benefits of this relatively new industry to SMBs.
Robin is currently working on the development of Informer 4 SMB software, a unique cloud solution which provides automated financial analysis of profitability and cash requirements for SMBs. This software will make management reporting far more accessible to SMBs