Profit and Loss Statement

Many business owners who come to us started out with a dream product, service, or idea and brought it to life. However, just because you have an idea, doesn't mean the rest of the company will naturally fall into place. One of the most important things to understand in your business is your financial situation. Odds are, if you came into your business with purely an idea, you probably don’t have any background in business accounting or the desire to learn– you've got a business to run, we get it! 

However, there is no time like the present to learn a few basic accounting tips and tricks, especially when it comes to your business!

Have you ever heard of a profit and loss statement? 

(It’s synonymous with the income statement)

The profit and loss statement, P&L for short, is an important, financial analysis tool for businesses who want to not only stay afloat, but thrive in the long haul. The statement summarizes the revenues, costs, and expenses incurred during a specific period. At first glance, this can appear daunting but when it comes down to it, it is just a simple equation…

SALES - COSTS = PROFITS

Now, don't be surprised when your CFO hands you a profit and loss statement that looks much more in depth than this formula – it’s their job! These profit and loss statements have sub categories for sales, costs and other expenditures. However, at the end of the day, it all simplifies down to the equation above.

Now that we understand the basics of a profit and loss statement, we have to learn how to analyze them...

When looking at your profit and loss statement ,you will notice at the top is your sales number – typically broken down in different categories. This as a matter of fact, is where you will really see the value of a statement like this. This provides you with a glimpse of where all of your work has gotten you and your business. It allows you to see if one store’s marketing campaign worked, or if the new store is meeting its monthly sales. Your profit and Loss statement is custom to your business and allows you to really see which services and products are lagging, and which are doing well. This allows you to move forward making informed decisions pertaining to your business. 

At times, the profit and loss statement can be a quite humbling experience for business owners– numbers don’t lie. However, with the profit and loss statement, you are faced with facts which allow you to confidently plan for the future because you know exactly where your business is at.

Before you go get your profit and loss statement, there are a few other abbreviations you should know!

COGS 

COGS is short for the Cost of Goods Sold applying to product-based businesses. This is the actual cost for producing and selling that product. 

COS

Cos is essentially the same as COGS, but instead of a product based business, it is related to the costs of providing your company’s service. The formula is written below

SALES - COGS= GROSS PROFIT

Entrepreneurs are known for taking risks, but nobody ever talks about calculated risks. By having your CFO create a profit and loss statement, you have the ability to be free to take risks, but have the information that allows you to be smart while doing it. 

Need a CFO? Call or email us today and schedule a free consult!