One Page Simplified Profitability

The test of an effective profitability system is acceptance and use by non accounting people.

The RMA approach produces a one page profit & loss Statement for each profit center.

The most common question is how long does it take?  That depends on the number of responsibility centers.  For an average community bank (less than $400 million) it might take 2 to 3 days the first time around given that the above steps are completed.  Thereafter, the work takes less than a half day per period.  A quarter is recommended.  The author has one client that loads the model and balances in less than 15 minutes.  It all depends on how the general ledger is set up.

This One Page profit center report example illustrates a very easy to understand, very easy to explain performance tool.

Over time the report format has evolved as the economy has changed.

The newest expense line added is the FDIC assessment which is truly a direct expense based on deposits.

Another line item in the analysis is Contribution to Loan Loss which is an expense. (Usually allocated to profit centers based on charge off expense.) Some loan officers confuse Contribution, which is an expense, and individual loan Charge-offs against the Loan Loss Reserve. They really get confused about recoveries. (Which go back to reserves.)  The author suggests an accounting 101 refresher.

Several clients have asked for different line items to be added.  That is probably good as long as it makes sense and still results in a ONE PAGE REPORT in 12 point type.  Do not put the Declaration of Independence on a pin head.  It cannot be read!