As business owners, we can be so busy with taking care of our customers and managing our team that taking time to “mind our business financially” can take a backseat. This is dangerous. According to Preferred CFO in conjunction with research done by U.S. Bank 82% of businesses fail due to poor cash flow management. This links directly back to reviewing the P&L regularly to assess how your business is doing in the areas of revenue, expenses, and profitability.

Why You Should Know What Is On The P&L?

The P&L helps you to measure how much you are making versus what you are spending. It also helps you when you need third-party financing. It can also help you with recognizing and analyzing what is selling well and what isn’t.

What Is On A P&L?

The P&L or Income Statement is comprised of:

The revenue or top-line number: This is the total income received from all sales.

The expenses: This is the total amount of money the business spent on operating costs and costs of goods.

The net profit or bottom line number: This is the total of what is left over after subtracting expenses from revenue.

This is a basic description of what is on the P&L and can be more elaborate depending on the type of business.

The P&L is a key financial statement along with the Balance Sheet report. It is used to assess the financial health of your business, measure what goods or services are profitable, is needed for third-party stakeholders like banks, and explains how much money is being spent on expenses. In the end, it explains how much profit you made for all your efforts. It is necessary to review this report along with the Balance Sheet regularly so that you can stay on top of your business financial health and be able to make good business decisions.

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