There are many reasons you would want to learn the basics of a P&L statement. When seeking financial assistance from banks or investors it’s a staple within the documents you will supply for review. I held a workshop and the participants loved and grasped this information. If your an aspiring entrepreneur or existing business owner its vital to dedicate some of your time to learning your financial basics.
What is a P&L statement? It’s a statement that is a summary of a company’s revenue and expenses for a set period of time, usually 1, 3 or 5 years. Also the P&L statement is also referred to as an Income Statement.
For US based sole proprietors, independent contractors and single owners of a limited liability corporation the information is used on the IRS form Schedule C
1st Sales (Revenue) – money received from the sale of a company’s products/services during the specified period
2nd Let’s look at the Cost of Goods Sold (COGS) – this includes all goods and service expenses directly accumulated to generate revenue. They are not your reoccurring expenses for doing business.
Total sales – COGS = Your GROSS PROFIT
3rd Now, let’s look at the Expenses (Operating Expenses/Overhead) - Money paid out as necessary expenses from the business to achieve a goal or purpose but are not directly related to making the product. These expenses are not the expenses within COGS. Some examples of expense line items are: insurance, equipment rental, payroll, rent, fees, phone, professional fees, etc. If you have to complete this section be sure to allot accordingly for possible variation for certain months. For Example: You may pay more fees to your accountant within the months you file taxes than just regular fees for booking services.
Gross Profit – Total Operating Expenses = NET PROFIT or LOSS
I hope this information has been useful, for more assistance or have questions concerning your P&L statement, contact me @504-495-4937 or send an email to firstname.lastname@example.org.