How to Effectively Manage Your Company’s Profit and Loss

Profitability is an important element that helps a business gain market share, giving corporate managers the means to innovate and produce better goods. As an entrepreneur, you should strategically manage your profit and loss (P&L). A positive P&L plants the seeds for a stable economic future for your company and yourself.

Devise a Business Strategy

It is never a good sign when a business starts losing money or when the returns on its investments are low or non-existent. Failure to generate enough revenue to cover operating expenses means the business will most likely be saddled with debts. To consistently make money, it’s important for a business to have a set strategy, whether that’s to become a market leader, be number one in providing excellent customer service, or be recognized as a top innovator in the industry.

Strategists often break down a master plan into smaller, more detailed initiatives called tactics. For example, if your company’s strategy is to be one of the top five players in its sector, write down the tactics and action plans that can help achieve that goal. You may consider things like reducing costs, expanding revenue, advertising in select or previously ignored markets, and upgrading your company’s technological infrastructure, including computers and servers.

Monitor Your Company’s P&L

According to Marianne M. Huey of Ohio State University, a P&L chronicles a company’s fight for financial survival, as well as the results of that competitive struggle, during a specific period (quarter, month, or fiscal year). A company’s P&L data shows indicators like revenue, expenses, and net income, or net loss if expenses exceed revenue. Revenues range from operating earnings and interest income to cash generated on investments or in joint ventures with other establishments.

Manage Corporate Cash Effectively

Effective money management refers to how a company saves money, grows its existing cash, and averts financial meltdown. Even if the organization has already bowed to commercial pressure or is experiencing economic turmoil, saving money can still be operationally smart. Enough cash in the company’s bank account can gradually give corporate leaders a sigh of relief and a chance to make the necessary changes to get the company back on the competitive track. Manage your company’s cash effectively by establishing procedures to control customer receipts, vendor remittances, and petty cash balances.

Combine P&L Tracking and Money Management

Business owners should work to combine operating strategy, P&L tracking, and money management to effectively administer the company’s income and save money in the long term. Start by devising a plan and then set a deadline to achieve the goal by. It is also important to determine the resources needed to reach it and establish what it will take to have those in place.

Next, comb through your company’s P&L statements, going line by line and identifying sections where you can slash expenses or boost income. Ask yourself if your business needs that expensive Thanksgiving marketing campaign, how to increase sales by giving discounts, rebates, and special exchange programs to customers, and which products or services to launch.

To be effective, a company’s operational blueprint must combine cash management, profit and loss tracking, and strategy formulation. Each component of this trifecta helps an entrepreneur understand how to increase money in the business’s bank account, increase sales, and outmatch the competition.