Nearly every successful business began with a plan. The owner determined what their goals were and how they were going to meet those goals. Too many businesses fail to establish a report card on their business and before long they find themselves failing without knowing the failure is coming. The report card, often called a P&L can give the business owner a heads up of problems to come as well as discover trends in their business.
As the name implies, the profit and loss statement is just that. An accounting measure to see whether your business is making a profit or experiencing a loss. The balance in your checking account is another measure of your success, but how it got to its current balance does not have to be a mystery. There are many different software programs that help you track your income and expenses, but it is going to take some serious thought and planning to develop an accurate P&L.
Your expense line can be divided into two essential areas. Expenses you can control and expenses that are fixed and do not vary from month to month. Let us first look at some examples of non-controllable expenses such as:
• Rent
• Utilities
• Insurance (Worker’s Compensation)
• Taxes
Understand these are only examples and are not meant to be all inclusive. Your individual expenses can be determined by some serious thought. Ensure you include each and everything that might come up that does not change on a monthly basis. Expenses that you can control may include:
• Payroll
• Advertising
• Employee relations
• Postage
Your business plan is where the budget for each item on your P&L is determined, allowing your to know how much income you need to generate to meet you obligations. Your P&L tells you how well you are doing in regards to meeting that income goal.
The P&L can be broken down by the month and year to date. Once established it should also include last year information by the month as well as year to date. By looking at the information it provides, the statement can also indicate billing or payment exceptions. You should also break it down by more than dollar and cents. You should determine what percentage of income is going to pay that expense and track that percentage monthly.
For example, under your controllable expenses, if you have a regular utility expense of $200 a month for example, and one month it jumps to $300 you will want to look into the bills to find out why the increase. It could be a mistake by the utility company and the sooner you challenge the cost the better opportunity you have of getting it corrected and credited to your bill.
Once your monthly statement information is generated, software makes it easy to track. However, the best program in the world is not going to ensure your success if you don’t take the time to analyze the information. Remember, it’s your money and your business and keeping track of your expenses can make a world of difference in your bottom line profit.
