The Basics of a Profit and Loss

The Basics of a Profit and Loss

What Is Profit and Loss?

Also called the P&L, a profit and loss statement can help you and your bank get a good understanding of the operating health of your business. It feels like we cover this often, but it is still the most asked question in meetings, and the item I diagram the most.

How to Calculate Profit and Loss:

      Gross Sales
–    Cost of Goods
=   Gross Profit

–    Overhead Expenses
=   Net Profit

We have net profit, where is that money? Why isn’t it in the bank?

This is always Part 2 of the question.  What you don’t see on the Profit and Loss are often categorized as “balance sheet” items.  Those include:

  • Research and Development Expenses
  • Equipment purchases
  • Large asset purchases
  • Interest payments

This means that the remodel you did: that was from profit.
The debt you paid off: that was from profit.
Those patent attorney fees? Straight out of net profit

Need help getting your P&L and Balance Sheet in order?

Business management consultants specializing in accounting will provide unbiased bookkeeping statements for your company according to your industry, and even train your in-house staff on how to maintain these company records.

–by Barb Fisher, Owner and Business Management Consultant, Fisher Business Management

About the Author Barb Fisher

Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).

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2 comments says February 16, 2016

We have met hundreds of entrepreneurs who never look at their profit and loss statements because they do not understand them and explanations have been too complicated. While we can t teach you to be a CPA, we can give you some basics that will help you with this important financial tool.

katherine says November 21, 2014

Great article. Thanks for the info, it’s easy to understand. BTW, if anyone needs to fill out a Profit & Loss Statement , I found a blank form here

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