The “Big 4” of a Profit and Loss Statement—Net Sales, Gross Profit, Operating Income, and Net Income—are the key indicators of a business’s financial performance and its ability to generate profit.
Primary Implication
Getting distracted by the relevant many things going on across a business is challenging. Particularly when sales are down, profits are low to negative, and collection call frequency increases.
When the business becomes overwhelming, you don’t want to face the day ahead, step back and focus on the “Big 4.”
Knowing how your “Big 4” numbers associated with Net Sales, Gross Profit, Operating, and Net Income are doing year-over-year and actual-to-plan is how you quiet the noise around you and create clarity on what’s working well in your business, where you are getting stuck so you can build on your strengths and take action against what needs to be done differently.
Overview
Your business succeeds or fails based on the surplus amount remaining after total costs are deducted from net sales. The “Big 4”—Net Sales, Gross Profit, Operating, and Net Income—ultimately anchor your profit plan as you lead your business through the year to your planned results.
The most effective and efficient approach to making more money starts with projecting the next twelve months for Net Sales, Gross Profit, Operating, and Net Income. Start with these four underlying results from your P&L Statement since these numbers matter most to your business.
While every number on your P&L Statement impacts the business profit equation, don’t be distracted by all of the line items your accountant can report for you on your P&L Statement. In the long run, your ability to make money is driven by how much you collect in sales, less your direct costs to produce what you sold and the indirect costs incurred to support your business. These are the numbers making up Net Sales, Gross Profit, Operating, and ultimately Net Income. The “Big 4” is what makes the difference between you making or losing money.
