How times have changed! I remember the times where a business owner only asked one question, “How much money is in the bank account”.
Fortunately, nowadays the request is for the Profit and Loss (P&L) monthly report.
So why is this a P&L report important to review?
A Profit and Loss (P&L) report, also known as an income statement, is like a financial report card for a business. It shows how much money the business made (revenue), subtracts how much it cost to make or sell things (expenses), and then reveals whether the business made a profit or incurred a loss.
So, firstly, it tells the business owner how much profit has been made in the desired period by the business.
However, the P&L report can tell you so much more!
What P&L reports do Tandem provide?
For my clients I supply a monthly P&L report showing the financial year to date, with, last year as a comparison. This can be a great tool supplying sales and expenses versus the previous year. From this we can learn which sales and expenses have increased/decreased in comparison to the previous year. This may bring up the question as to why! For example, why have sales dropped 10% year on year for August? From this you are armed with the information to investigate:
- What happened in August?
- Were all sales invoices raised?
- What could be contributing factors in the decrease, e.g. Bad weather?
- Did September follow this trend or did the 10% loss come back?
- Why have materials increased by 10% overall on last year?
- Has a supplier increased their prices and would it be time to seek a new supplier for better terms?
- Have our prices been raised to coincide with the materials price increase.
- Look for any charging errors or was there a reason for the increase.
These are just a few points that can assist a business owner in making more profits.
If you don’t review it, how can you control it!
A P&L reports helps you to be in control of your business
You can be in control of your business finances and review the P&L with the comparison on a monthly basis. But it’s important to ensure the bookkeeping is up to date for the period you are reviewing.
The P&L report is the one thing that brought me into the accounting industry.
For 20 years I worked as a Supermarket Manager and every month I eagerly awaited receipt of the previous months P&L report. The main reason was basically a selfish one. I was on a very favourable bonus scheme and I could track and monitor how we were doing and was I going to achieve the bonus. I learnt quickly by having this information I could implement if needed corrective actions for areas I was failing in.
This process was very successful for myself and from there I decided on an accounting career.
Where can I get more information on P&L?
As the information contained in the P&L is vast so I decided to split this into a few parts. This is part one of my P&L blogs.
If you would like a review of your P&L and feel a free discovery call would be beneficial, please click on the BOOK A CALL button.