A Profit and Loss Statement, or a P&L (as the cool kids like to call it) is a report that tells a narrative about your business over a specific period of time. Whether your business is big or small, it all comes down to numbers! The story of your business is told through reports like the Profit and Loss. Yeah, super cool Billy, but seriously, how can I actually understand all these numbers? Geez, relax, I am getting there. You will generally have these three categories on your P&L:
- Revenue: Income
- Cost of Goods Sold: Your direct costs
- Operating Expenses: Overhead
After we add and subtract and subtract the above, we see your net profit or your net loss. You can then use these numbers to:
- Plan for the future by using the past.
- Make sure your business is profitable
- See where you are overspending and where you have room to spend more.
Long story short, if you know how to read and understand your P&L, you can use it to as a tool to truly understand where your business stands.