Do you know how much money you’re making?
It’s kind of an odd question to ask a business owner, but it’s also one with a surprisingly complicated answer. To figure out your profit, you can’t just add up your revenue, but you also have to account for expenses like rent, employee paychecks, damaged inventory, bank fees, business internet and phone plans, and a host of other possible revenue-draining activities.
Enter the profit and loss (P&L) statement, or income statement. It’s a relatively simple, line-by-line explanation of, well, your company’s profits and losses, all added up to a tidy summary of your net income.
Along with showing you whether your business is in the black, income statements also show banks and investors how you’re doing so they decide on things like loan amounts and interest rates. Most importantly, a P&L statement can help you make key decisions about where to cut costs and how to up profits.
You don’t have to prepare a P&L statement on your own. Plenty of accounting software will do it for you. But if you don’t want to invest in accounting software or you just want to draw up your own statement, no worries—that’s what we’re here for.