Understanding your Profit & Loss

The Profit & Loss statement, also known as the Income Statement, is a powerful tool that shows the financial performance of a company over a specific period, usually a month. At the bottom of the page is a simple example of a Profit & Loss.

WHAT IS A PROFIT & LOSS STATEMENT?

A Profit & Loss statement (P&L), also known as the Income Statement, shows the financial performance of a company over a specific period of time, usually monthly. It provides a snapshot of all revenues, costs, and expenses and summarises how well your business performed in making a profit. At the bottom of the page is a simple example of a P&L.

ELEMENTS OF THE P&L:

1. REVENUE/INCOME/TURNOVER:

This is the money your business earned during the period. It includes sales, services, or any other income sources.

2. COST OF GOODS SOLD (COGS):

COGS represents the expenses directly tied to producing goods or services. For example, if you sell products, COGS includes the cost of raw materials and labour to make those products.

3. GROSS PROFIT:

This is calculated by subtracting COGS from revenue. Gross profit reveals how much money you made after covering the direct costs of producing your goods or services.

4. OPERATING EXPENSES:

These are your day-to-day business expenses, such as rent, utilities, salaries, marketing and any other costs involved in the running of your business.

5. OPERATING PROFIT:

By subtracting operating expenses from your gross profit gives you the operating profit. This shows how well your core business operations are generating profit.

6. NON-OPERATING INCOME AND EXPENSES:

Beyond your core operations, this section includes any additional income or expenses not directly related to what you sell - usually tax, dividends etc.

7. NET PROFIT:

The grand finale! Net profit is the bottom line, representing the total profit or loss your business made after accounting for all revenues, costs, and expenses in that specific period.

If numbers still seem like a foreign language, don't hesitate to seek help from a professional. They can provide valuable insights tailored to your business.

The Profit & Loss statement is your financial compass and will help guide you through business. By mastering this report, you can make informed decisions and steer your business accordingly.

Remember, start with the basics, ask questions, and watch as your understanding and your business grows.