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Profitability FAQs |
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Summary:
Answers to frequently-asked questions about
analyzing job, client, and department profitability with Clients &
Profits. Clients &
Profits excels at reporting profitability by job, task, and client.
These reports show profit from two perspectives: Gross profit based
on job billings minus costs, and job income from the General Ledger.
This flexibility allows you to get to the real bottom line faster.
This FAQ answers commonly-asked questions about the profitability
reports. To learn more about profitability reports, the Snapshots
chapter in your User Guide offers a comprehensive discussion of profitability
reports.
Q. What's the difference between profitability reports and financial statements? Profitability reports are based on job tasks, job billings, and job costs. Financial statements are based on general ledger journal entries. This means job profitability reports show "soft" costs, like in-house expenses, labor cost from time sheets, and job cost transfers. In contrast, financial statements show literally what's been posted to income, cost, and expense G/L accounts. Financial statements focus on accounting periods, while profitability reports can look broadly at job profit by date, period, or even job status. Profitability reports don't show overhead expenses, since those expenses aren't usually posted to jobs. This means you're seeing "gross profit" on profitability reports (i.e., the net income before overhead).  Q. When should I use profitability reports instead of financial statements? Profitability reports are designed to show how much you're making by job, task, and client. You should use these reports specifically to see if your jobs are being properly estimated. Each job needs to make enough money to pay for the agency's overhead--that is what's important about analyzing the job's gross margin (i.e., the difference between job billings and job costs, including time). Use financial statements to see the agency's net income from a strict accounting perspective, taking into account ALL expenses for the month. Q. How can profitability reports help me run my agency better? The profitability reports will show you the clients, jobs and tasks that are profitable and the ones that are not. With this information, you will be able to evaluate certain problems in your agency. You may find that you are estimating jobs too low, or you are using your most expensive staff on clients with smaller budgets. With the knowledge provided by profitability reports, you will be able to take steps to correct the problems. Q. How does Clients & Profits integrate accounting and production? The financial accounting system in Clients & Profits is fully integrated with, but separate from, the job tracking, costing and billing of the production side. Accounting entries are coded in two ways: a debit or credit G/L number for the accounting side and a job number and task code for the production side. Not everything posted to the G/L hits the job ticket, and not everything on the job ticket is posted to the G/L. The two systems work together, but run parallel. This enables you to run profitability reports for the job and client, or to look at company profitability as a whole. Q. Where do profitability reports get their numbers? Profitability reports, like job reports, pull information from the job tickets. The job ticket is updated when costs and billings are posted to the G/L. Time entries and expenses are also posted to the job ticket, but they do not update the G/L. The criteria for running profitability reports are by job and billing status, and by job activity date range. Q. Where do financial statements get their numbers? Financial statements only use data from the general ledger. All G/L entries for a fiscal period are reflected on either the Balance Sheet or Income Statement for that period. Besides the entries which are job-related, overhead invoices and checks, miscellaneous billings and journal entries are posted to the G/L. Journal entries for salary expense or for Work in Progress are examples of costs and income on the G/L, but not the job ticket. The criteria used to print the statements is the fiscal period. Q. How is the labor cost calculated on profitability reports? The labor cost is calculated with the standard cost rates that are set up in the Staff file. When time sheets are added, the standard cost rate in the Staff file is multiplied by the number of hours on the time sheet. The cost amount is included in the labor cost on the job ticket. Q. How can I look at actual labor costs instead of labor costs calculated with standard cost rates? Using actual labor costs can make it difficult to compare clients and jobs from different time periods. A staff person will have a lower cost rate during months when they work a lot of overtime. This will mean that jobs your agency works on during slower periods will appear less profitable than jobs worked on during your busiest periods. If you do want to view your client profitability with actual labor costs, then use the Overhead Allocation feature in Clients & Profits ProAgency Manager 3.x. Q. How is "projected gross margin" calculated? Projected Gross Margin looks at the estimate and budget amounts on a job ticket to project what a job's gross margin will be when the job is finished. Projected Gross Margin is the job's estimate minus budget. The budget amount on a job ticket usually represents the estimated cost to you for hard costs on the job. Q. For what time periods should I run the profitability reports? Profitability reports can be run for any range of dates that you want to review. You can also limit the reports to jobs with certain status codes. If you are looking at Projected Gross Margin reports, you may want to evaluate all of the jobs that are currently active. These are the jobs that will be affecting your bottom line in the next weeks and months. If you want to compare the profitability of your clients, then you may want to limit the report to closed jobs. Open jobs may not be able to show you an accurate picture of your profitability because of timing issues. You may have all of the costs recorded on a job but not the final billing, or you may have prebilled the job and have not recorded any costs yet. Print the report for jobs with a specified range of start dates or closed dates; a range of several months will help smooth out any seasonal fluctuations Profitability reports can also be limited to a range of work dates (i.e., the date the work was done). This will let you isolate your agency activity for a period time. If you want to know which client or AE has been most profitable over the last six weeks, then run the report for the six week work date range. This will pull all of the billing and cost activity for that time period. Q. Is there a report that will compare the current year profitability to last year? Yes. There is a Client Profitability report called Comparative Client Profitability that will show you the profitability for each client for the current year and for last year. It'll show how your agency's profitability is improving (or, sadly, declining). Q. Can I compare the profitability reports to the financials to verify that jobs are being updated correctly? No. Because the information on the reports and the criteria used to pull that information differs, profitability reports can't be reconciled to financial statements. Each type of report is useful for analyzing profit in a different way. Looking at profit from two different sides gives you a larger picture, but don't try to "mix apples and oranges." The Income Statement reports the profit for the company, both for the period and year-to-date. Overhead expenses such as rent and insurance are shown on the Income Statement, but do not update the job ticket. The cost of labor is posted to the G/L via payroll journal entries or checks. On the other hand, the profitability reports show the profit for the job or client, including time entries and expenses added for overhead charged to the job. If you would like to see how the Income Statement is allocated to clients or jobs, run a Job Income Statement or a Client Income Statement from Financials. The reports can be run for one period and will include all jobs or clients with activity during that period. Only journal entries which reference the job or client will be used for these reports.
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