How often do you look at your profit and loss statement? When you look at it, are you able to make decisions based on the information (decisions other than, ‘Boy, I need to make more money’)?
Knowing how to read your P&L offers a number of benefits not only in helping you keep more of your money, but also helping you know where you can invest in your business to generate the biggest impact.
Maybe we should begin with…..
What is a Profit and Loss Statement?
It’s a comprehensive document that summarizes your business’ gross revenues, total expenses, and net profit all in one place. Pretty terrific, right? It’s nice to have all of the information in one place.
At the forefront, your Profit and Loss can impact your tax liability – thus, an accurate P&L can help you keep more of your money, ideally. It also provides you with a big-picture overview that can provide insight into the health of your business.
At its core, you’re looking at three key components in your statement. They are sales, costs, and profits. Your sales are your gross revenue or income. Costs are your expenses, and profits are what’s left over. Sales minus costs equal profits.
As you review your statement here are questions to consider:
- How is your revenue compared to last year? If you see a change in gross income, then you’ll want to look at why there was a change.
- How much am I spending? Your expenses can sometimes be modified, and your income statement will help you see where you spend your money.
- How much am I really taking in? After expenses, what is your net profit? Is it decreasing over time? If so, why?
A profit and loss statement can provide significant insight into the financial health of your business. Like a budget, it can show you where you’re spending, where you can make more money, how you can invest, and how you can improve profits. It can be a big motivating document. It can also show you what may need to change if you want to stay on track to meet all your business goals.
Did you know that I have an Accounting degree? If you are having a difficult time understanding your financials or if you are wondering if they are accurate, let’s have a conversation. I can help. Book a time on my calendar at https://DecisiveMinds.com/connect
