Profit and Loss Statements: What Are They?

If you have started doing accounting for your business, you have probably heard of a profit and loss statement.  You obviously want to know how much money you are making, so tracking clearly important.  That said, you may not be totally clear on the whole concept.  What is a profit and loss statement exactly, and why is it important to your small business?  Here is everything you need to know about profit and loss statements.

What Is a Profit and Loss Statement?

In the simplest terms, a profit and loss statement, also called a P & L Statement, is a document that summarizes all the money your business has made and spent over a certain amount of time.  It tracks revenue, costs, and business expenses.  Each of these is broken down into further categories, and all of the cash flow in that area is listed.  Most businesses get a profit and loss statement every quarter and every year.  A P & L is sometimes called an income statement. 

Why Are Profit and Loss Statements Important?

As a business owner, you want your company to thrive.  Taking a data-driven approach to growth is a great idea, as numbers make things clear and simple.  Comparing your statement each quarter to the ones before can help you evaluate how well your business is performing in certain areas.  You can then make changes based on these observations.  This is especially important to do at the end of each fiscal year.  Your company should ideally be doing better at profit and loss with every yearly statement.  If you aren’t, identifying key areas where you are falling behind and focusing on correcting these can make a huge difference in your business growth.

Profit and loss statements are not just important to your company’s data-driven success.  They are also required by law in many places for certain businesses.  Different business associations may also require P & L statements from their members.

The statement shows how healthy your business is financial.  Because of this, potential lenders and investors will also want to see your P & Ls.  No one will give you money for free.  They want to make sure you have had at least moderate success before committing a large sum to help your company continue. 

Who Creates The Statement?

If you run a small business, you may do all the accounting and bookkeeping yourself.  If this is the case, you would also be in charge of profit and loss each quarter and fiscal year.  It is possible to do this from within the company, especially if you have previous accounting experience.  A typical statement should include the following sections:

• net income
• operating income
•  expenses
•  debts
• taxes
•  lease payments
•  any association and membership fees
• bottom line

Maybe you have been tracking profit and loss and other business expenses for a while already and are starting to get overwhelmed.  This can actually be a good sign.  More paperwork means that your company is growing and making more money.  It may not feel like a good thing if you have to keep being in charge of it, however.  That is why most businesses, both large and small, outsource their bookkeeping and accounting.

Bluefire Accounting can help.  They know you didn’t start your own business to spend all your time creating profit and loss spreadsheets.  Outsource your bookkeeping to Bluefire Accounting, and reclaim your time for running your company.  Call (704) 979-4334 to schedule a free strategy session today.