Today Id love to give a warm welcome to DANIELLE HAYDEN from Kickstart Accounting! She will be teaching us all about profit and loss within our business.
Profit and Loss Statement 101
Have you ever thought to yourself – “Is My Business Making Money?” While the answer may seem simple, it’s actually not. Instead of dwelling on the past, you should instead be asking yourself “What Can I Do To Grow My Business?” But you’ll first need to know how your finances are looking. And the first step to figure out how much your business is really bringing in is to make sure you are fully understanding financials. To familiarize yourself with the financial workings of your business, you’re going to need to look at your Profit and Loss Statement. Since this document lays out how much your business made and how much it loss over the fiscal year, it provides you with a visual snapshot of information that can help you better make decisions. Here’s a look at how to use your Profit and Loss Statement to make business decisions what will grow your company in the next few months and beyond.
Top line Sales
Analyze where you are making money Analyze what products you make the most money from and market those products.
How much does it cost you to make each product? Don’t forget just because a product is selling it doesn’t mean that it is your most profitable product and it doesn’t mean you are making money from it. Look at each one of your products to understand how much it costs you to make that product. List each ingredient and the amount used per unit plus the amount of time it takes to create of unit of your product. If you are a service based business use the amount of time it takes to provide that service multiplied by the standard rate of pay for that service
Operating Expenses-These are the expenses that you incur to run your business such as insurance, rent, dues, software, etc.
Find Pitfalls & Wasteful Spending Profit and Loss Statement gives you a snapshot of what you’ve earned and what you’ve lost. This means you can easily spot any areas you need to cut back on to get your take home in the green. Don’t forget about that software you signed up for 6 months ago and forgot to cancel it (we’ve all done it!). Use this time to understand what you are using and is it worth the costs.
Look into the future and set goals for your business
Now that you understand what products are driving your sales, what your costs are to create those products and what operating expenses you have to have to run your business you can start to look at the future and set goals for your business? What amount of money do you want to be bringing home each month? Once you know that you can determine how many units or product or service hours you will need in order to support that goal.
Goal 2,000 per month Fixed operating costs 500 per month
Cost of goods sold to create 1 unit 25 per unit Selling price of one unit 75 per unit Profit per unit 50 per unit
Number of Units that need to be sold to reach my goal 50 Units
= Goal + Fixed Costs / Profit by unit
Stop asking yourself “Is My Business Making Money” or “Why Can’t I Grow My Business” and finally find out the truth. As you can see, understanding financials is a key aspect of responsible business ownership. Keep your Profit and Loss Statement handy when making business strategies, creating plans or laying out goal sheets. You’d be surprised just how much you can learn from a simple profit and loss statement!