Pro Serv Podcast by Collective 54 Episode 161 – Behind the Numbers: Decoding the Finances of a Boutique Service Firm
Mar 1, 2024
William Lieberman, Managing Partner at The CEO’s Right Hand, shares his expertise in financial management for small to medium businesses. He and Greg Alexander break down the essentials of Profit and Loss statements, simplifying crucial terms like EBITDA and net income. They delve into important topics such as the nuances of OPEX versus CAPEX, and emphasize the role of clear financial reporting in business valuation. The discussion also touches on transitioning to accrual accounting and its impact on financial credibility. Perfect insights for service firm leaders!
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What is a P&L Statement
- A Profit and Loss (P&L) statement shows how a company makes money, spends money, and ultimately profits over time.
- It tracks all incoming and outgoing money and the resulting profit for a defined period like a month or year.
Practical Revenue Recognition
- Recognize revenue over the time period services are delivered, not just when cash is received.
- This avoids overstating income and liabilities, especially with advance payments like subscriptions.
Defining Cost of Goods Sold
- Include all direct labor costs tied to delivering client services in Cost of Goods Sold (COGS), whether contractors or employees.
- Carefully evaluate roles like customer success to decide if their costs belong in COGS or operating expenses.
