I was at a new client yesterday and it was music to my ears. 
They were looking at going deeper into an area – well past what most people think about in their financials.

That area was revenues.  The new client wanted to break revenues down into more lines of business. 
They had good reasons for this:

• To really get an understanding of how they were making money by product line.
• To reflect warehousing as a profit center, since they were now providing warehousing services for customers and generating revenues from it.
• To make better decisions on pricing.
• To see how new product lines are coming along.
• To decide if any product lines should be phased out or outsourced.

Very few companies do this well in their financial statements.  Typically revenues and cost of revenues are pretty collapsed, sometimes even just one line in the income statement for each.  Yet in the administrative cost area, there is much more detail.

I think that is backwards.  Much of the detail in administrative costs isn’t going to change how you do business, other than perhaps cut some spending.  There may be some key areas, like marketing and R&D, but certainly not in the general administrative costs. 

But what happens above the line in revenues and margins is usually very critical.  Yet most financial statements don’t provide that critical information.

That’s why my client’s desire to go deeper in revenues was such a beautiful thing.  Then the question came up, how deep to go, how much to carve it up?  Here a couple thoughts:

• How material is it to you overall?  Something more than 5-10% of revenues should be considered to be split out.
• Is it something new or otherwise on the radar?
• How easily can you capture the information?  Will you have a true split or will you have to make an artificial allocation that might be meaningless?
• Will you do anything differently if that category was split out and reported separately?

Use this as a guide to go deeper in your revenues and show more categories on your financials.  At least get your accounting area to record more splits in your general ledger.  If you have the detail, you can always collapse it.  If you don’t have the detail, however, it is hard to split it later.