Tracking your financial progress is crucial to know how your small business is doing. Profit and loss statements for small businesses make it easy to keep track of your profit, expenses, and bottom line so you can balance your budget and grow your business. Keep reading to find out everything you need to know about profit and loss statements from our team with over 25 years of financial experience.
Accounting and Tax Advisers CPAs proudly provide profit and loss balance sheet templates, financial consulting, and tax services for businesses in the Lombard, IL, area. Call us today at (630) 932-9600 to get personal or professional financial advice from our experienced CPAs.
What Is a Profit & Loss Statement?
Sometimes referred to as an income statement, profit, and loss report, statement of operations, or a statement of profit, a profit and loss statement is a financial tool that small businesses use to evaluate their financial status.
The statement details your business’s income and expenses over a certain period of time. It shows the difference between your business’s total revenue and expenses to determine its net income during that period. It is different than a cash flow statement or balance sheet because the profit and loss statement shows your ability to turn a profit.
Why Is a Profit & Loss Statement Essential?
P&L statements are a vital tool for startup businesses because they help you evaluate your company’s financial standing, allowing you to monitor profitability and growth during a specific period.
The statements also play a crucial role in loss prevention, helping you identify damaging business practices, such as overinvestment, that can ruin your small business.
Also, you will often be required to produce several years of your business’s profit and loss history when applying for a small business loan, looking for investors, or selling your business.
How Often Should You Calculate Profit & Loss Statements?
Normally, small business owners should prepare profit and loss statements monthly, quarterly, or annually. At Accounting and Tax Advisers CPAs, we advise preparing these statements quarterly and annually. We can provide easy-to-use profit and loss statement templates to guide you through the process.
Key Components of a Profit and Loss Statement for Small Businesses
The profit and loss statement consists of two main parts—the income earned and the expenses incurred. Though not every statement will have the same line items, these two parts are often broken down into several entries relevant to your small business.
The following are the key components of a profit & loss statement.
This is the first item reported on the statement and includes all your business’s income sources. It is sometimes referred to as gross receipts, sales, or any other term that describes your company’s operating revenue.
Costs of Goods Sold
If your business sells goods, you must determine the cost of goods sold. This refers to the cost of purchasing your inventory or the materials used to create your products. Then, the figure is subtracted from your sales to determine your gross profit.
This entry refers to any expenditure you incurred during the running of your business. Such expenses can include salaries, office supplies, advertising costs, and vendor or contractor payments.
Net Profit or Loss
This entry refers to your business’s profit or loss once the taxes due are subtracted from the pretax income. This is the bottom line that shows how much you earned or lost during the statement period.
Make Accounting Less Taxing
While profit and loss statements for small businesses are straightforward, they are not every business owner’s cup of tea, especially keeping in mind all the other aspects of your business that you have to stay on top of. Focus on running your business and leave the accounting to us! At Accounting and Tax Advisers CPAs, we offer an extensive range of accounting services that will help steer you to your goals.
Get personalized help from experts with more than 25 years of experience with profit and loss statements, balance sheets, taxes, and more. Reach out to Accounting and Tax Advisers CPAs in Lombard, IL, at (630) 932-9600 for your free consultation.