One of the easiest and quickest ways to see how well your company is or isn’t doing is to read your Profit and Loss statement, or P&L. This is true of all businesses big and small, and fortunately for you, you don’t need to be a trained CPA to understand your P&L and utilize the information it has to offer.

It looks so complicated!

It’s really not! At first glance, all of those numbers and words seem confusing, but when you break it down, it’s simple. All the report boils down to is the money you take in, minus the money you pay out. Whatever is left is either your profit, if you have money left, or your loss, if you’re in the negative.

The reason why this report seems so complicated is that people use so many different words to mean the same thing. For example, the money you have coming in can be referred to as sales, income, or more commonly, revenue. The money going out, or your costs can also be called expenses.

Another reason this can be so confusing is how your particular report is laid out. Depending on your business, your revenue and expenses may either be in one lump sum, or broken down into different categories, which at first glance can often leave you scratching your head.

It’s really that simple?

No matter how your report is broken down or laid out, the important thing to take away is your total revenue minus your total costs, and then what’s left, which is typically broken down at the very end of the report. Say, for example, in one month you brought in $20,000 in revenue and paid out $18,500 in expenses. That leaves $1,500 as your profit! This is also known as the ‘bottom line’ you hear so much about.

Your P&L will usually be broken down in such a manner that it will allow you to compare monthly, quarterly, and annual reports. This gives you insight into whether you’re holding steady, making more money, or losing money compared to previous time periods.

Don’t hesitate to sit down with your CPA liaison, bookkeeper, or accounting partner if you have more in-depth questions, but this explanation should help you to get a better understanding of exactly where you stand at a glance. Don’t be afraid to check your P&L often, it doesn’t bite!

Need help with your small business financial planning? Schedule a free consultation with CEO, Rebecca Berneck.

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