Understanding your Profit and Loss (Income Statement) is essential to the success of your business. If you’ve read my other posts you’ll see how I emphasize the importance of reviewing your Profit and Loss and other financials reports in order to succeed in business. I’d like to discuss how to read a basic Profit and Loss report.
First, the definition of a Profit and Loss:
A profit and loss statement (P&L) is a financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time, usually a fiscal quarter or year.
Section 1: Income (Figure $29,251.00 in image)
A standard P&L will have the Revenue section at the top of the report. This shows your actual Sales figure for the specific time frame. (Day, Week, Month, Quarter or Year)
A more detailed report will breakdown your Revenue into sections to show you the revenue per Service, Product or Marketplace
Section 2: Cost of Goods Sold (COGS) (Figure $2,340 in image)
Your cost of goods sold is as the name describes, it reflects the cost of the product you purchased to resell or the cost to make the product. This as well can be broken down into further detail.
Section 3: Operating Expenses (Figure $38,888 in image)
This section shows you how much you’ve had in expenses to run your business. For examples of categories refer to image.
Section 4: Net income (Figure $11,977 in image)
This number reflects that from your Income – COGS – Operating Expenses = Net Income/Profit
Now that you see this breakdown you can understand and agree that it is important to have an accurate report frequently. This shows you how your business is doing for any specific time frame allowing you to see where you need to cut costs and even where you need to invest