PROFIT OR LOSS? Are you familiar enough with your P&L account?

May 11, 2020

A little while back on the blog, I spoke about the importance of a cash flow forecast as a small business. Today I wanted to talk to you about another important report to be familiar with- the Profit and Loss Statement/Account.

A P&L Account is broken down by month and shows you the following for your business…

• REVENUE (total sales)
• COST OF SALES OR COST OF GOODS SOLD (for product based businesses) are the direct costs that are related to production or purchasing products for resale. For instance, the packaging and the cost of buying the product at wholesale or the price of the raw materials to make it.
• REVENUE-COST OF SALES= GROSS PROFIT.

Once you have your gross profit figure, you now want to take any remaining costs from this, so the next section on the report is:

• EXPENSES: This includes costs such as travel or a company car, wages, rent, subscriptions, any interest you are paying on loans etc.
• GROSS PROFIT- EXPENSES= NET PROFIT (profit with ALL expenses taken into account). This is referred to sometimes as THE BOTTOM LINE.

An up-to-date P&L report is very important to help you assess how profitable and successful your business currently is and it can help you make important strategic decisions. For instance, looking at whether your product is priced correctly or whether you can justify further expenses. You also need to submit a P&L for a small business loan or if you are seeking funding from investors.

If you have accounting software and keep it up to date, you will have access to a P&L account you can review through there. Otherwise, you can create your own P&L account using an excel template- I have linked to a good article which contains one here.

If you are feeling a little stuck and overwhelmed by the reports you need to review as a small business owner, I can help. I can assist you in setting up your KPI’s (Key Performance Indicators) and review them with you monthly to help you take a step back and stay on the right track. Just get in touch if you would like more details- lucy@bornatdawn.com.

Good luck! 

Image by: Mélodie Bouchard @allo.melo

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