What is a Profit and Loss statement?
Often called a P&L, a Profit and Loss statement is like a health check for your business. It tells you how well your business is doing financially during a month, a quarter, or a year. It shows you how much money you made, how much you spent, and if you made a profit or a loss.
How to calculate your profit and loss
To create your P&L statement, you can use our free Profit and Loss template. Here’s what you’ll need to include:
Income
Record all the money you earn from your business, like sales, services, anything that brings in money. Make sure to subtract any discounts or refunds you gave.
Costs of selling
If you sell physical stuff, figure out how much it costs you to make or buy those things. These costs include materials, labour, and anything directly related to what you sell.
Gross profit
This is how much money you make after taking away the costs of selling from your total earnings. It shows the profit before considering other expenses.
Operating costs
List all the money you spend on running your business, like rent, utilities, salaries, advertising, insurance, fuel, subscriptions and other regular expenses. These are the costs you need to keep your business going.
Profit or Loss
Subtract your operating costs from your gross profit. If you end up with a positive number, congrats, that's your profit. If it's a negative number, it's a loss.
Either way, analyse the results to see how you can improve in the next period.
Why a Profit and Loss statement is worth your time
Your P&L statement helps you see exactly how your business is doing financially. It shows you where your money is coming from and where it's going.
With a P&L statement, you can find areas to save money and make better financial decisions. It helps you set goals and make a detailed budget for your business.
If your plans include taking out a small business loan, a well-kept P&L statement proves to lenders that you handle your finances well.
At tax time, your P&L statement is crucial. It breaks down your income and expenses, which you need to calculate your taxes correctly.
Great Southern Bank’s Business+ app or Business+ online not only lets you apply for small business finance with no paperwork to fill out, the Business+ Account tags your transactions to help you separate your expenses and income. This makes it easier when creating your P&L.
With a clear understanding of where your business stands, you can decide what's working and what's not. You can adjust prices, marketing and how you run your business based on the numbers. It takes out all the guesswork.
Regardless of whether or not you’re a natural with numbers, a P&L statement is a must-have. It’s your compass, helping you figure out where your business is and if you’re on track for success.
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