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