Big businesses usually have teams of accountants and a CFO carefully managing the P&L statement, with small businesses sometimes the owner becomes the jack-of-all trades which means that the P&L belongs to them. Whether you have a background in finance or not, managing your P&L is critical to the success of your business.
If you’re just starting a small business now is the perfect time to set a clear plan for managing your P&L. Just to make sure we’re all on the same page let me first explain what a P&L statement is:
A P&L statement is a summary of the profits and losses of a business during a particular time period, hence the shorthand notation of P&L. It is a statement showing how much revenue a company brings in along with the costs and expenses it incurs – having this all together in one place is a clear way to see how profitable your company is.
Whether you are running a Domain Investment business, Software Company, or a Sandwich Shop, if you aren’t keeping track of your P&L then you probably aren’t optimizing your business and maximizing your profit. Luckily there is no such thing as too late so hopefully this edition of Small Business Sunday will encourage your to pay more attention to your P&L and in the end, cut costs and improve profitability.
Here are some quick and easy ways to get started managing your P&L without getting overwhelmed:
- To get started you don’t need any fancy accounting software. Just fire-up Excel and create a document with a column for gross revenue and a column for expenses. Now create a cell labeled “Net Income” and make this equal to your gross revenue minus expenses.
- Setup a time to review this every week, month, or at least once a quarter.
- Set profitability goals, i.e. I want to generate a profit of $x this month or this quarter. Don’t feel bad if you don’t hit your goal, but learn from it.
- If you really want to take it to the next level you can hire an accountant to do a one-time look at your P&L and recommend ways in which you can maximize profitability.
- Stick with your schedule and don’t lose touch with your P&L statement, the more in-tune you become with it the less you’ll want to take on unnecessary expenses because you’ll have to add them to your P&L and watch your net income decline, it’s a very powerful thing!
I personally review my P&L every Sunday, that way when I start the week I know how I’m doing and what I need to do to hit my goals. I set monthly goals and checking weekly has really helped me stay on-track. Hope this helps all the small business owners out their optimize their business and stay laser-focused on what really matters – profit!