Monthly Check Up

Jeff Adler The J&B Group Farmingdale, N.J. [email protected]

YOUR COMPUTER IS LIKE A MAGIC BOX. Each month, computerized financial records produce potentially business-altering information. Yet the number of hauling companies putting this information to use is shockingly low. Most haulers conduct financial evaluations based only on yearly information gathered to prepare tax returns. However, using monthly figures to pinpoint successes and soft spots can improve employee and expense management, and generate additional revenue.

Almost every company uses some method of computerized payroll calculations and check-writing ability. Medium-sized haulers generally have sophisticated billing systems that cost thousands of dollars for the software alone. And even the smallest business usually has a few computers. Businesses should not be afraid to use the abundant data their computers accumulate to analyze operations every month.

First, dispel the myth that says accounting records have to be 100 percent correct to be valuable. It is the nature of accountants not to release any information until they have compiled, reviewed, checked and double-checked every number. Accountants want to make sure no stone goes unturned before offering the “official” statement of how the company has done. But businesses can't make decisions about current operations with last year's information, which is why timely, ballpark figures are better to work with than accurate but slightly out-of-date figures. One way to obtain timely information for decision-making is to create a monthly mini-income statement. This statement should consist of three elements:

Revenue

A billing system allocates revenue wherever you tell it. Summarize revenue by business categories, such as roll off, front load, rear-load residential, and rear-load commercial. When billing for the month is complete, ask the accountant to provide a report showing total revenue for each line of business. Then, compare revenue by each line of business with the past four months. This will reveal trends showing which business areas are growing and by how much.

Payroll

This is the most controllable expense. Look at payroll hours as soon as the information is prepared for submission to the payroll processing company. This data should be summarized into meaningful groups — such as shop, front-load drivers, rear-load drivers, rear-load helpers, roll-off drivers and administration. Once this information is prepared, compare the hours with payroll hours from each of the past four weeks. Without waiting for the payroll summary report from the processing bureau or for checks to be distributed, start asking questions if hours change from week to week.

Hold supervisors accountable for controlling payroll by not allowing overtime. Keep informed about what payroll expenses should be as the month progresses, so that no surprises arise when you receive the final total at the end of the month.

Disposal

Once upon a time, haulers could take their time paying landfill and transfer station invoices. However, in some parts of the country, disposal must be paid for in advance, which means haulers are paying these costs on a timely basis and recording them in accounting systems as they are paid. Take advantage of this requirement to process payments quickly. Record disposal expenses by line of business. Indicate roll off, front load, rear-load residential and rear-load commercial disposal figures separately in the general ledger. As soon as the final disposal invoice has been entered into the accounting system, ask for a report showing total disposal by each line of business. Then, compare the disposal dollars with each of the past four months. Again, look for trends that could indicate problems that should be addressed.

The final step in creating the mini-income statement is to combine all three items to create an income statement for each line of business. The statement should compare the current month with each of the past four months. Companies will then have a clear picture showing which aspect of the business is contributing to profit at the end of the year and which parts need productivity improvements or pricing corrections. Create this mini- income statement every month. Prepare the statement no later than the second week of the following month.

The trends revealed in monthly mini-income statements should enable businesses to make appropriate changes to correct areas that aren't going as well. For example, haulers often price themselves out of the residential subscription business. But using mini income statements can prevent haulers from making the mistake of giving up profitable work by pricing it too high. The data helps haulers to locate holes in other, more unsuspected areas of business, such as singling out unprofitable residential contracts that cause a company to lose money.

Preparing mini-income statements also has other benefits. Instead of telling employees about earnings trends, companies will be able to show them by pointing out specific information. And more importantly, businesses will identify opportunities to increase company profits by fixing parts that may be broken.