Small Business Sunday: How Often Do You Review Your P&L Statement?

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:

  1. 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.
  2. Setup a time to review this every week, month, or at least once a quarter.
  3. 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.
  4. 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.
  5. 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!

{ 5 comments… add one }

  • Grant Hewson July 3, 2011, 4:50 pm

    More small business owners should learn from you! Reviewing your P&L weekly (especially at the beginning of the week) is a fantastic way to get a hold of where you are and what the goals should be for the upcoming week.

    Too many business owners put financials to the back burner because they think it’s too hard or it’s stressful or they just can’t be bothered. But at the end of the day, profit is all that matters and unless they take time every week to go over the basics, you can bet failure is in their future…

    A great lesson and a great post!

    Reply
  • Avraham for Dentist July 4, 2011, 12:21 am

    At some point in life I spent several days testing all kinds of small business software, to arrive to a a conclusion similar as yours. I use Google docs, if is free and exports to excel. It has been years and works great, highly appreciated by the accountant. Great Post!

    Reply
  • Prashant July 4, 2011, 2:48 am

    Hi Morgan,

    Thanks so much for this informative post.

    I am Prashant from Zoho.com – a suite of over 26 web applications for small businesses . This includes applications for spreadsheets, presentation,CRM, Project Management and Zoho Books, an online accounting software as well.

    Periodically reviewing your P & L is extremely important. I am completely at peace with you on that. That said, I am not sure Excel or a spreadsheet is the best way to get that done. What with online accounting software from Zoho and others designed to be simple enough for non-accountants available now. While small business don’t need any fanciful accounting software or those that break your bank – an easy to use accounting software would be extremely helpful. For example, they need not go through the hassle of adding columns and setting up formulas in Excel. Using Zoho Books, they can record transactions as they understand ; money coming in from invoices; expenses etc and the software automatically calculates the P & L. For example in Zoho Books, all they need to do is just login and take a look at the dashboard; that tells you how the business is doing.

    Regards“
    Prashant

    Reply
  • SavvyBizBuilder July 4, 2011, 5:25 am

    To review P&L requires at least small background of accounting. I agree what you had set, to check Profit and Lost, it doesn’t require an accounting software. It only needs a small knowledge of accounting and a free resources. Thanks for sharing your amazing tips.

    Reply
  • Prashant July 4, 2011, 10:35 pm

    @SavvyBizBuilder

    I do not think a background in accounting is required if the P & L report is free of jargons and clearly enunciates the income and expense figures; even better if enhanced with visual aids and represented in the form of a graph.

    Regards
    Prashant

    Reply

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