Your Origami Monthly Report is a simple and succinct summary of the most important numbers in your monthly financial statements. These posts help you understand and use this valuable information to manage and steer your business.
The most important thing you'll learn from your monthly income statement is whether your business made a profit. Your business makes a profit when it sells products and services to customers for an amount that exceeds its costs to supply those products and services.
The summary income statement included in your Origami Monthly Report shows you this calculation with all the details removed. This high level view is the best way to quickly assess and track your performance each month.
Here's an example summary income statement with round numbers. You can click on the row labels or the column headings to get more information on what the report is telling you.
|This Month||%||Last Month||%||Trailing 12 Months||%|
|Net Income Before Taxes||2,000||20||1,500||17||20,000||17|
This row shows you the sales your business generated for each of the periods listed. You'll want to see your sales increasing over the long term, but you're also likely to see some ups and downs from month to month. The number you'll want to watch is your trailing twelve months sales. If that number keeps going up month to month, then your business is growing.
You can increase sales by getting more customers, selling more to the customers you have, offering new products and services, or increasing prices for your current products and services.
This row shows you what's left after subtracting your direct costs (or cost of good sold) from sales. Direct costs typically include raw materials, packaging, shipping, subcontracting, goods purchased for resale, and labor directly involved in producing your products and services. You incur direct costs with each sale. If your sales go up or down, your direct costs should follow.
You can increase gross profit by increasing sales. You can increase gross profit margin (gross profit as a fraction of sales) by raising your prices or by producing your products and services more efficiently, that is, by lowering your direct costs.
In the Origami Monthly Report you'll see this value also referred to as Real Sales. This emphasizes that sales is a number best viewed after your direct costs have been taken out. Why? Small businesses often don't have as much control over the direct costs of their inputs as bigger businesses do. So we favor a view of sales that already takes those costs into account. Gross profit (or Real Sales) is what you have to work with to cover your overhead and make a profit.
This row shows you the profit your business was able to make after subtracting direct costs and operating expenses from your sales. Usually this number and the Net Income number below will be the same so operating profit is what you want to focus on when you're thinking profitability.Operating expenses include the fixed costs that your business incurs even if you don't make a single sale. This includes items like rent, insurance, office supplies, and, most importantly, wages or payroll.
We include a Salary Cap in your monthly report to show you the level of wages relative to your sales and to tell you the level of wages you need to target in order to hit your profit threshold. The salary you pay to employees is often the biggest variable you have under your control when it comes to overhead, so we make sure you can see it right up front in your report.
Net Income Before Taxes
The values in this row, as mentioned, are often the same as the values in the operating profit row. When there's a difference, it's due to one time income or expense items that don't have anything to do with the regular operation of your business. During the recent pandemic, the amounts businesses received from the CEBA and CEWS programs would have been recorded under this other income and expense category.
You'll certainly want your net income to be positive. Where it's not or where it's not at the level you expect, you'll want to dig into the details to investigate where your business model isn't working.
This column shows you the results for the report month.
This column shows you the results for the month prior to the report month. It's a handy way to see if the current month's results are in line.
Trailing 12 Months
This column shows you the totals for the past 12 months. Your monthly results will tend to bounce around: good months, not so good months. The numbers in this column give a smoother picture of how your income statement numbers are trending. You should check your monthly numbers for short term feedback and your trailing 12 months numbers for a sense of the direction your business is heading.
% (Common Size)
The % column shows you the value as a percentage of sales. This allows you to assess your costs, expenses, and profit in terms of sales.
You'll also see these common size figures referred to as margins. In the example table above, for the reporting month, the business has a gross margin of 60%, an operating margin of 20%, and a net margin before taxes of 20%. Businesses are always looking for ways (efficiency, brand, unique selling proposition) to increase margins. Your business should be no different.
Some industries have lower net margins than others. This is usually a function of competition and how much value a business in the industry adds when transforming its inputs to outputs.
In the small business sector, service businesses with unique or specialized skills can often command high margins, whereas service businesses with commonplace skills often can't.