How to read your P&L

Ok, be honest.  Do you know what a “P&L” is?  If you are an entrepreneur and/or own a business, I would bet you do.  If not, or you are starting your business, this blog is for you.  Let’s start with the basics.  The Profit and Loss, often referred to P&L, is also called an income statement.  This statement shows you your revenue and expenses over a certain period of time.  Some prefer reviewing this weekly, monthly or quarterly.  Bottom line, you should be looking at this regularly.   Along with your balance sheet, your ‘Tide Flow’ (remember this helpful cash flow/budgeting tool), your P&L provides a complete picture of your financial position.  

Now that you know what a P&L statement is and does, what is included in it? 

1. Income – What money is coming through the door?  Don’t forget. If you have multiple revenue streams, include all.  Online sales, store sales, books sales, etc.  

2. COGS – Cost of Goods Sold. If you don’t sell a good, this would be the cost of the service. 

3. Gross Profit – Don’t be alarmed, this isn’t ‘gross’.  The gross profit simply takes the revenue/income you made and subtracts your cost of goods/services.   

4. Expenses – This includes operational costs, technology costs, staffing costs, etc.  Anything that you spend money on to operate should be categorized here.  

5. NOI – Net Operating Income.  This is where the rubber meets the road for business owners.  The net operating income is what is left over after all expenses are paid for.  If your business is profitable, this number will be positive.  If your business failed to make money or paid out too much money (ie. Staffing, large monthly expenses, etc.), this will be a negative number.  

6. Total Net Income – If there are any non-operating expenses, such as taxes, those need to subtracted from the NOI.  That total number is your total net income.  Fingers crossed for a positive number! 😉 

Understanding all of these numbers is easy when you are working with a professional bookkeeper.   Any successful business owner will remind you, when you know your financials like the back of your hand, business gets better.  It starts with knowing how your business is doing.  

Are you interested in learning more about ShoreSource Business Solutions, LLC?   

Feel free to reach us at 843.729.2961 or info@shoresourcebiz.com.