When you own and run a business, knowing where you stand financially is essential to your success. Even if you feel like business has been booming and you’re doing really well, you might look at your records and find that everything wasn’t as it seemed. This is why it is essential to have profit and loss statements to guide you. Propel Your Accounting is here to talk about why profit and loss statements are so important for business owners and how they can help their businesses thrive.

What is a Profit & Loss Statement & Why is It so Important

Profit and loss statements are pretty self explanatory. They show you whether or not you made money or lost money over a specific period of time. They are usually done every month, quarter, and year. These statements are also called income statements periodically. This critical financial statement is something that can be so beneficial to business owners. It can help them know the ins and outs of their business better. As a business owner, you need to know if you’re earning enough to cover your expenses. You need to know whether or not you are thriving enough to hire more employees. This financial statement can also help you know if the business model you’re working with is sustainable or not. There is real value in regular profit and loss statements because they can alert you if there is something that you need to change within your company.

Three Parts to a Profit & Loss Statement

There are three main parts to a profit and loss statement:
– Income: The first part of your profit and loss statement will show you the revenue that your business has brought in. This is the income that you have made from selling your product or providing your services. The income your business generates often falls into three different categories. Operating revenue, which is income that you have because of selling your goods or services. Non-operating revenue is money that you get from things like interest, rental income, licensing fees you’re collecting, and so on. Gains comes from a one time transaction such as selling equipment or something of that nature.
– Expenses: This is the amount of money it takes to run your business. This is the money that is going out rather than coming in. Expenses could include things like labor, materials, and any other costs that can accrue when you’re running a business.
– Net Income: Okay, once you have the numbers from the first two parts of this financial statement, you come up with net income. It is essentially your revenue, minus the expenses. So whatever you end up with after subtracting the expenses from your income would be your net income.

Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America

As a business owner, you have to stay on top of profit and loss statements. It can be difficult to do on your own. That’s why so many business owners turn to Propel Your Accounting to do it for them. Call us today!