P&L - COGS vs No GOGS

I wanted to share a PSA with you all.

One of the most common gaps I've noticed when helping new agency/firm clients with cash flow and business forecasting is the absence of Cost of Goods Sold (COGS) on the Profit & Loss statement (I've literally just reviewed yet another P&L that has this gap, hence sharing this PSA). It's a crucial aspect often overlooked, but it's vital for understanding the financial health of a business.

COGS, also known as Cost of Sales or Direct Costs, is not just another line item. It provides insights into underpricing, staffing adequacy, and potential expenses that should be billed back to clients. Unfortunately, it's often missed due to a lack of awareness rather than any fault of the agency/firm owner or bookkeeper.

To shed more light on this topic, I've posted a walkthrough video to LI with an example of a P&L with and without COGS. It also covers why COGS matters and how it impacts agency/firm operations.

Feel free to check it out if you're interested. Knowing this will make a significant difference in how effective your P&L is in helping you/your financial team manage your business' profit and cash flow.

And if you know your P&L is already set up with accurate COGS, I'm so glad!!!