Managing your business can be incredibly satisfying.
From creating innovative products to guiding your business’s direction and being a successful entrepreneur.
However, dealing with the numbers can be less enjoyable.
Those troublesome numbers.
Most business owners can attest that staying on top of administrative tasks can become frustrating over time.
One overlooked administrative task that holds significance is your company’s profit and loss statement.
Here, we will explore what your P and L statement should include, when to submit it, and everything in between.
Short on time? Here are the key takeaways
- A P and L statement is a financial document that details your company’s revenues, expenses, and costs on a quarterly basis.
- Public companies are required to submit P and L statements.
- You can create a P and L statement using either the cash method or the accrual method.
What Is a Profit and Loss (P and L) Statement?
Let’s get right to it, shall we?
In simple terms, a P and L statement is a financial report submitted quarterly, outlining the revenue, costs, and expenses for that period.
This statement offers insight into a company’s profitability and is often presented as a cash figure.
Companies and investors often refer to these P and L statements to gauge a company’s financial health.
Don’t Skip: The Best Profit Margin Formulas for Your Business
How Profit and Loss (P and L) Statements Work
As mentioned, P and L statements are submitted quarterly, along with an annual summary. They are accompanied by a separate cash flow statement and balance sheet.
You may have encountered the term P and L before without realizing it, as it goes by various names, including:
- Income statement
- Earnings statement
- Statement of profit and loss
- Statement of operations
“Your income statement is probably one of the most strategical statements that you should really look at and understand.” – Alexa von Tobel
“Your income statement is probably one of the most strategical statements that you should really look at and understand.”
A P&L can be prepared in two distinct ways: as a cash statement or through the accrual method.
Cash Statement
The cash method is the simplest way to create a P and L statement, taking into account cash flow in and out of your business.
This method is suitable for smaller companies or freelancers who want control over their finances.
The Accrual Method
The other option is the accrual method, which recognizes revenue when it is earned, accounting for anticipated future income.
This doesn’t mean you can operate at a loss in hopes of receiving a large investment down the line. Rather, it refers to providing a product or service at an agreed price and awaiting payment as per the contract. The same applies to anticipated expenses.
Profit and Loss (P and L) Statement Template
That’s a lot of information to absorb in one go!
To simplify things, here’s a basic P and L Template for you to reference. For more advanced statements, check out Amazon’s P and L or Walmart’s P and L, which are extensively covered by Alexa von Tobel in our Finance for Founders training.
Here’s the P and L template in Google Forms.
Why Are Profit and Loss (P and L) Statements Important?
All this information is valuable, but why is a P and L statement crucial? If you know your business is profitable and track earnings and expenses diligently, why bother creating a statement?
Firstly, if you operate a publicly traded company, it is mandatory by law. This requirement ensures regulators, investors, and analysts can review your financial data to maintain transparency.
Secondly, a P and L statement offers a visual representation of your business’s growth and identifies potential financial challenges over time. Managing a business is demanding, so having a clear top-line comparison for previous months and years helps keep everything on track.
Lastly, when pitching to investors, you will likely need a P and L statement to provide detailed insights before they consider investing in your brand.
Keep Learning: Annual Recurring Revenue – Calculate Your Subscription Revenue
Take Your Business to the Next Level
P and L statements are just one aspect of your business that requires attention. Fortunately, we offer a range of free training resources to help you navigate these complexities.
Say goodbye to confusion and welcome clarity and productivity.
Source: ( foundr.com / Financementality.com )
