Profit and Loss for New Business Owners
Do you know how well your business is doing--really doing?
Over 627,000 new businesses open each year, but almost half of them fail before they hit the five-year mark. Are you on track to beat the odds? Or are you about to become a statistic?
Maybe you have clients or customers, and revenue comes in on a regular basis, but that’s not enough to ensure your company will succeed. If your expenses outpace your revenue, the business won’t last.
You have to know how your business is doing when it comes to profit and loss before you can declare your company a success. Of course, the goal is to take in more money than you spend. However, your company may run at a net loss for a while when you first start. The important thing is that profit stays positive most of the time.
Knowing your profitability is essential if you want to grow your business. Here’s what you need to know about creating sustainable cash flow!
Creating a Profit and Loss Statement
Most business owners know the financials of their business, but having an official profit and loss statement is important. While you can create a rough document with some accounting basics, you’ll benefit most if a financial advisor helps you.
The first thing to do is to choose a reporting period. You can do a profit and loss report every month, quarter, or year. Publicly traded companies are required to release one quarterly and one yearly.
Document all of your company’s income during that time. Your gross income is the top line, the beginning of the report. Next, document all of your expenses during that time frame.
Subtract the total of your expenses from your gross income. The result is your bottom line, or your total profit. If the number is positive, you’re doing well. But if the number is negative, you’ve lost money.
Which Expenses Should Be Included
One of the things that makes a profit and loss statement simple is that it includes everything. Unlike a cash flow statement, it doesn’t have to include only cash on hand.
If you have any questions, a financial advisor can help. These professionals are well versed in preparing financial statements and can make sure you don’t miss anything.
Here are some common expenses to make sure you list:
- Rent or mortgage on office space, as well as maintenance costs
- Business insurance
- Equipment and office supplies
- Marketing expenses
- Meals and travel
- Professional fees and licenses
- Interest paid on business loans
- Payment processing costs, such as credit card processing fees
- Utilities
What Do You Do with Profit and Loss Reports?
A P&L report is much more than personal information. It’s an essential part of your business plan and financial statements.
If you need a loan from the bank, they will want to see a history of profitability. These reports are the proof you need. You can also use these statements as part of a pitch for funding.
P&L reports are generally included in a public company’s annual report as well. As a smaller private company, you won’t need to publish yours publicly.
How Financial Advisors Help Business Owners
Having a financial advisor can make a significant difference in your business. The right professional will help you understand your financial position and make wise decisions. This can set you up for success and help you avoid common pitfalls.
New business owners don’t always know the right questions to ask. You are also, unfortunately, a target for shady salespeople who want to take advantage of your inexperience. It’s easy to spend money on products and services you don’t need.
Having a financial advisor in your corner can help you make the right decisions with confidence. If you’re ready to get started with a professional, contact us today!