A profit and loss (P&L) statement, also known as an income statement, is a financial report that shows a company’s revenues, expenses, and profits over a specific period of time, usually a month or a year. The P&L statement is one of the three main financial statements that businesses use to report their financial performance, along with the balance sheet and the statement of cash flows.
The P&L statement begins with a company’s revenues, which are the money it receives from selling products or services. It then subtracts the expenses incurred in the process of generating those revenues, such as the cost of goods sold, salaries and wages, rent, and utilities. The resulting number is the company’s net income or net loss.
There are several reasons why small businesses should have a P&L statement. First, it helps the business to understand its financial performance and identify areas where it is making or losing money. This information can be used to make strategic decisions about pricing, cost control, and revenue growth.
Second, a P&L statement is often required by lenders, investors, and other stakeholders in order to evaluate the financial health of a business. This includes banks, which use P&L statements to assess the creditworthiness of a business when considering a small business loan.
To acquire a P&L statement, a small business will need to gather and organize financial information about its revenues, expenses, and net income. This may involve tracking financial transactions and preparing financial statements. Many small businesses use accounting software or hire a bookkeeper or accountant to help with this process.
In conclusion, a P&L statement is an important tool for small businesses to understand and manage their financial performance. It is also a key factor that banks consider when evaluating a business for a small business loan. By regularly preparing and reviewing a P&L statement, small businesses can make informed decisions about their financial strategy and position themselves for success.