A profit and loss statement is the report that shows you an overview of your business’s income, expenses, and profits or losses over a period. It’s also called an income statement, earnings statement, or statement of operations; and many businesses run this report monthly or quarterly.
As a small business owner, your profit and loss statement can help you prepare your tax return, can open the door to getting approved for lines of credit, and can also provide you with key information regarding your business’s financial health. However, many business owners don’t prepare their statements regularly (or at all!)
Why is a Profit and Loss Statement Important?
Your profit and loss statement is essential for determining how much you owe in taxes. An inaccurate statement, estimations, or no statement at all can leave you paying significantly more than you really need to or you may underpay, which can leave you in serious trouble. With an accurate profit and loss statement that is run at regular intervals, there is no need to stress about such things!
Additionally, your profit and loss statement is often a requirement from your bank if you want a small business loan. Banks often use them to determine your financial solvency and if you generate enough in profit to be able to pay back debt.
Finally, your profit and loss statement shows you the outcome of your decisions and how your business is operating. This is where you get clear data showing where you can trim back expenses and leverage your more profitable goods or services, whether you can pay more toward a debt, and whether or not you can hire additional staff.
Components of a Profit and Loss Statement
At its core, your profit and loss statement will have three key components:
- Income: Income is how much money you’re bringing in. While you can make this one line on your profit and loss statement that is simply titled “sales” or “income,” you can also break it down depending on how you keep your financial records.
- Expenses: Your expenses are all your outgoing money, from your advertising and payroll to paying for office supplies and wholesale goods. Your expense section can be broken up into a few sub-categories, including “cost of goods sold,” “administrative costs,” and “additional expenses.”
- Profit (or Loss): Once you have your income determined and your expenses calculated, subtract your expenses from your income, and you should have your business profit or loss depending on if the number is positive or negative.
Creating Your Profit and Loss Statement
As a business owner, you may find that preparing your income statement is time-consuming and overwhelming, and if you’re just starting out, you may make a costly mistake. That’s why it’s important to reach out to a qualified CPA, such as Goldin Group LLC, to prepare your financial statements or provide advice may be a better option that can save you time and money.
Trust the Professionals at Goldin Group
At Goldin Group LLC, we understand that as a self-employed person or business owner, keeping up with accounting and taxes is time-consuming and can even be overwhelming. That’s where we can help! We work with individuals and businesses in Maryland (DC Metro Area), offering a variety of financial services designed to save you time and lower your tax burden. If you are a small business that is looking to outsource your accounting or if you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email firstname.lastname@example.org to make an appointment.