I was catching up with an old friend recently. He told me that his firm hired a superstar from the Federal government who helped draft Obamacare and other bills.
At a business meeting, the business leaders were reviewing their income statements, often referred to as “the P&L” for Profit & Loss statement.
For those who have not taken a basic accounting class or been responsible for managing a business or department, the income statement, or P&L, lists the various income and expenses for an organizational unit. The organization unit might be an entire business or one part of a business, like a department or a specific location. Each McDonald’s, for example, has a monthly P&L that managers use to help judge the financial performance of that location.
The P&L subtotals all the income and expenses to see if the unit generated a profit (P) or loss (L) for the month. If income is greater than expenses, the bottom line is positive and profitable. If income is less than expenses, then the bottom line is negative and a loss.
My friend told me that the government hotshot had a perplexed look on his face throughout the day. Later, the guy asked, “what’s a P&L?” And it wasn’t just the terminology that he wasn’t familiar with. He had never heard of an income statement.
It’s not comforting to know that we have folks in DC drafting legislation that will touch all our lives and they don’t even know about a basic financial measure. It was also a bit surprising to me that my friend’s performance-focused firm hired such a person. But, my guess is he was hired him for his political connections, not his business savvy.