When I became a director of a meatpacking company, I was concerned about the thin profit margins, the corporation’s lack of working capital, and my inexperience in the industry.
The company slaughtered cattle from Tuesday through Saturday. By Monday the products were shipped and the coolers were empty–what a perfect time to measure the profits for the seven day period that just ended. I suggested that we establish the workweek for payroll to be Tuesday though Monday and we replace the monthly income statement with a weekly income statement for this seven-day period. Our payroll service had the payroll processed by Wednesday evening and the next day we could review the company’s profit for the week that ended just three days earlier. One manager’s eyes lit up and he shared his excitement about no longer waiting until July 20 to see an income statement for the month of June.
The weekly statements were not only more timely, they were easier to prepare when it came to inventory and payroll. (When the company had monthly income statements and the month ended on a Wednesday, the company would have inventory of live cattle and products to be accounted for. The weekly payroll would have to be divided between months.) The cost of cattle was the largest cost, but that cost was available for each day, since cattle had to be paid for within 24 hours of purchase. It would be much easier getting the cattle information on a Monday when the plant was not operating. Of course we had to estimate utilities and supplies used during the seven-day period, but we also had to estimate those expenses when we prepared monthly financial statements.
Not only did we adopt weekly financial statements, we adopted an accounting and tax year that ended on the last Monday in January. We also prepared “monthly” financial statements that covered the four or five weeks ending on the last Monday of each month.
It wasn’t long before the owner took the one-week income statement further. He started computing daily income statements in his head.
