The P&L Statement is a financial report that allows businesses to compare actual results with planned results, identifying areas where profits were gained or lost, to take corrective action, and to improve future performance.
Primary Implication
The best summary of management’s performance is your P&L Statement, which, as the name indicates, reflects either profitability or the lack of profits from reported business operations.
Overview
Understanding Your P&L Statement
A P&L (Profit and Loss) statement is a financial report that shows how much money your business made or lost over a period of time. It summarizes your revenues and expenses, giving you a clear picture of your financial performance.
Why is your P&L statement important?
Analyzing your P&L statement helps you:
- Identify areas of improvement: By comparing your actual results to your planned results, you can pinpoint areas where you’re losing money.
- Track your progress: You can see how your business is performing over time and identify trends.
- Make informed decisions: Your P&L statement provides valuable insights to help you make better business decisions.
How to analyze your P&L statement
Start by comparing your actual profits to your planned profits. If your actual profits are higher, that’s great! Try to figure out what you did well and do more of it.
If your actual profits are lower than planned, you need to take action. Here’s what to do:
- If sales are low: Figure out why. Is it a marketing problem (not enough leads) or a sales problem (not closing enough deals)?
- If expenses are high: Are your costs of goods sold too high? Is your overhead (expenses like rent and salaries) out of control?
Take action!
Don’t ignore problems revealed by your P&L statement. Address them quickly to protect your business and improve your profitability.
