A profit and loss statement (P&L) is one in the trio of financial statements which together can reveal what is, has and could happen to your business.
The three key financial statements used to report a company’s financial performance are the profit and loss statement, the balance sheet, and the cash flow statement. Of the three, the P&L is the most popular and common financial statement used when preparing a business plan. It quickly shows how much profit and loss is generated by a business. (Thank you, Investopedia)
The profit and loss statement is a power tool
My clients are diverse, but they have a lot in common. When it comes to business, they’re concerned about having control and power. The P&L is the one tool, a real power tool, that allows business owners to have all the control they ever dreamed of having. Many business owners, sadly, fail to get it, plug it in, or use it.
Do you really get it?
Sure, you got your last P&L, and you probably read it. But did you really get it?
The P&L calculates several metrics, including the gross profit margin, the operating profit margin, the net profit margin and the operating ratio. Together with the balance sheet and cash flow statement, this profit and loss statement provides an in-depth look at a company’s financial performance.
The profit and loss statement, together with the balance sheet, (which shows what the business owns and owes at a single moment), and the cash flow statement (which provides data on all cash inflow and outflow during a given period), give the owner an in-depth look at a company’s financial performance.
What does all this mean?
Business owners who aren’t using this power tool don’t have the power or control they need to run their business to its full potential. Most of my business owner clients readily admit they don’t understand their P&L and don’t know how to interpret and use it. With something of a gallows laugh, they add they probably wouldn’t even recognize flags or warning signs in their financials. And they don’t mind telling me they want help.
So, to help a wider audience really get it, maybe I should become a late-night television infomercial host, and go about promoting P&Ls like something brand new :
The Amazing Power Tool for all Trades…
- Controls your ability to generate profit by increasing revenue, reducing costs, or BOTH
- Exhibits more than a mere snapshot as seen on the balance sheet
- Holds the secret to reveal that change is more important than numbers themselves
- Is one of three powerful statements issued quarterly and annually by every public company
- Is used to dig deep into the darkest, most hidden secrets of your business
5 reasons to read your P&L
- It’s your guide for business decision-making. Without a P&L that you actually read, understand and apply, you’re making best guesses
- An accurate P&L is essential to planning and controlling your business tax outcome
- A profit and loss statement is part of your financial paperwork for obtaining loans
- You may be required by law or other memberships to keep a P&L and submit with various licenses, audits, and reporting
- TAXES, again…an accurate P&L is essential for controlling your business tax liability.
The bottom line
The new tax laws have made it almost impossible for business owners to run their business and become specialists in business planning, projecting business trends, tax management, payroll, and other business management requirements that make their businesses successful.
Whether you’re a business owner or not, every person should have a proactive, planned tax strategy. Act rather than react. Don’t wait until it’s time to file your taxes to begin your preparation.
I’ll say it over and over: Tax preparation is full-time, year-round work. The filing is the result. You can have the same opportunities as my clients have to control your own financial future. I can become your CPA tax specialist and financial business and life goals advisor and you can have the control you need and want.
Our goal is to become part of your overall life and business goal planning team so you’ll be able to establish your own goals and know that you have a trusted professional on your team. We establish and maintain a personal and business relationship with our clients. Your LIFE is your business and your BUSINESS is your life. We’re here for YOU.
You may also be interested in:
More information about Melanie Radcliff CPA, Inc., is available here
Know you’re always looking for tax-advantaged business deductions