#3 The Profit & Loss Statement
Part 3 of 7
P&L assesses the financial health of the business to make informed decisions about where to invest or cut costs.
A profit and loss statement is a financial report that summarizes a business's income and expenses over a specific period of time. The P&L can be used to assess the financial health of the business and to make informed decisions about where to invest or cut costs.
The P&L statement begins with income, which includes revenue from sales, interest, and investments. Expenses are then deducted from income, which gives the net profit or loss for the period. The P&L statement can be prepared for any time period, but is typically prepared on a monthly or annual basis.
There are several key things to look at when reviewing a P&L statement.
1. Gross profit:
Gross profit is total revenue minus the cost of goods sold. This number represents the profit generated from selling products or services.
2. Operating expenses:
Operating expenses are all the expenses incurred in running the business, such as rent, utilities, salaries, and marketing. These expenses should be closely monitored, as they can eat into profits quickly.
3. Net profit:
The third is net profit, which is gross profit minus operating expenses. This is the bottom line number that shows whether the business made or lost money.
The P&L statement can be a valuable tool for small businesses. It can help owners track income and expenses, and make informed decisions about where to invest or cut costs.
By closely monitoring the key numbers, small businesses can ensure that they are making a profit and staying financially healthy.
