Rectifying GP & NP Margin

360accountants - Portfolio - Accounting - Rectifying GP & NP Margin
Accounting

SaaS Bookkeeping

This SaaS Start-up is still one of my most $$$ earned clients.

The client faced significant challenges due to DIY bookkeeping efforts. As a non-accountant, the client attempted to manage their financial records, leading to a series of inaccuracies that distorted their financial picture. 

The major issue at hand was the misclassification of payroll expenses. Payroll costs were incorrectly charged to Admin instead of being accurately categorized under Direct Costs, and Marketing Costs. This misclassification had a profound impact on the startup’s financial statements and decision-making.

Upon investigating the issue, I identified several core weaknesses in their bookkeeping process. The misclassification of payroll expenses led to the wrong reported Cost of Services (COS) and distorted Gross Profit (GP) and Net Profit (NP) Margins. The lack of professional accounting expertise compounded the problem, resulting in a misaligned financial picture and inaccurate reporting. These issues affected not only internal financial assessments but also external perceptions and decision-making.

  • Increased time spent on bookkeeping errors
  • Reducing overall productivity and efficiency.
  • Reduced focus on core business areas
  • Inefficient use of resources.

Causes and Effects

Impact on Financial Statements:

  • The GP and NP Margins appeared higher than it was.
  • Direct costs (COS) were inaccurately reported
  • The equity balance became incorrect.

Project Details

Operational Inefficiencies:

  • Increased time spent on bookkeeping errors
  • Reducing overall productivity and efficiency.
  • Reduced focus on core business areas
  • Inefficient use of resources.

Decision-Making Challenges:

  • Misaligned financial reports led to poor financial insights, impacting strategic decisions and business planning.

HOW I HELPED

By addressing these issues, I was able to help the client realign their payroll expenses and improve their financial reporting accuracy. This led to a more accurate reflection of their COGS, corrected their GP Margin, and provided clearer insights into their NP Margins. 

The improvements not only refined decision-making but also boosted investor confidence, demonstrating the critical importance of accurate bookkeeping and professional financial management.

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