Very often, a company’s income statement that we’ll see will look like this coming from a canned program. You have the sale minus cost to sale equals gross margin. Then you have number of the other costs below the margin line all put together in administrative cost to then come down to operating income.

I’ve got a problem with that. You’ve got a wide range of very different activities all lumped together in one big bucket. I sat in a board meeting recently where board members questioned just that what was going on with the administrative cost. They just couldn’t properly tell the picture.

Consider all the different things that could be there in the administrative cost:

1. Product development activity. Pretty important to be able to have a look in concerns of how much money is being allocated towards future of the company.

2. Selling and marketing expenses. What is it costing us to generate the business that we have? It’s another key thing to split apart.

3. Information technology. As technology has changed dramatically over the past couple decades and in particular during the past decade and taken on much greater importance towards the company’s success, this is a major bending bucket that needs to be split out.

4. Professional services. You might have some very significant professional outside services apart from your regular internal administrative cost.

5. Administrative costs. Finally, we get to the category which has everything dumped into it.

So imagine now instead of having the administrative costs all lumped together in that one big pot, think how much meaningful it will be to have it split-out. You can see the key question like how much is being invested in the future. How much is being put in information technology infrastructure? How much is being devoted to attracting and retaining customers, among other things? You can’t tell when it’s in a big pot and everything lumped together.

So to get a better picture on how your company’s doing and where the money’s going, don’t blend it all together, not all dollars are going in equal ways. Know the key differences below the margin line.