“It seemed to me that the financial atom of a company is the transition,” said Profit Isle’s Jonathan Byrnes, who has developed a concept helping management teams make better decisions, more accurately meet budget and achieve step changes in profitability.

By diving into each transaction, billions upon billions of inefficiencies can be uncovered, he said in our latest episode of the MDM Podcast.

Byrnes is the Chairman and Founding Partner of Profit Isle and a senior lecturer at MIT. As a consultant and leader of a SaaS software profit analytics firm, Byrne has developed supply chain logistics concepts that have accelerated the profitability of many leader companies over several decades to the tune of well over $100 billion. 

One is enterprise profile management, which is a way to create a full profit and loss statement on individual transactions. The concept allows the SaaS profit company to access a company’s general ledger costs and account for each transition — which amount to millions of transactions per quarter or per month — and assign descriptors to those transactions.

A complete profit platform can then use this information to support customer and supplier report cards, account management, product management, pricining, inventory, productivity, cash management, and so on. 

“It’s one integrated system that produces all of these things,” Byrnes told MDM’s Tom Gale. “If you change one thing, you can test how other things would change. So it has a tremendous impact, particularly in budgeting, where we’ve been doing a lot of work recently. And it’s really a very different and comprehensive way to run a business.”

Software allows Profit Isle to reconstruct budgets on a transaction-basis. By running transaction-based actuals against the transaction-based budget, Profit Isle can then tell exactly where profit is lost, and how it varies from the budget.

Byrnes is a longtime contributor to MDM and will present on the best practices for managing budget variances at MDM’s 2023 Virtual Profitability Summit on July 19. It is free to register for this full-day program.

In the podcast episode, Byrnes gives a sneak preview of his upcoming presentation, which will break down three key issues with budget variances: 

1. Budget categories are too broad.
2. Interaction between budget categories is overlooked.
3. The most important budget categories are left unmeasured.

For more on profitability concepts from Byrnes, listen to the full podcast episode via the audio player above, and check out our full library of MDM Podcasts here.