5 ways to familiarise yourself with the profit and loss statement

The profit and loss statement (P&L), also known as the income statement, is a crucial financial document that displays the revenue and expenses of a business over a specific period. As a business owner, it’s important to familiarise yourself with the layout and terminology of your P&L statement to understand your financial performance better. Here are five tips to help you get started:

• Know the key terms:
  The P&L statement contains several key terms that you need to know to understand it better. Revenue is the total income generated by the business during the period. Cost of Goods Sold (COGS) is the direct cost of producing the goods or services sold by the business. Gross Profit is the difference between revenue and COGS. Operating Expenses include all expenses incurred during the period, excluding COGS. Net Income is the final profit or loss amount after all expenses have been deducted from revenue.

• Understand the structure:
  The P&L statement typically starts with the revenue at the top, followed by COGS, gross profit, operating expenses, and net income at the bottom. Understanding the structure will help you analyse the data more effectively.
• Analyse the trends:
  It’s important to track the trends of the various line items in your P&L statement over time. This will help you identify areas where your business is doing well and areas that require improvement.

• Compare with industry standards:
  Comparing your P&L statement with industry benchmarks can help you understand how your business is performing in comparison to your competitors. This information can help you identify areas where you need to improve.
• Seek professional help if needed:
  If you’re unsure about the layout or terminology of your P&L statement, don’t hesitate to seek professional help from an accountant or financial advisor. They can help you understand the financial health of your business and provide advice on how to improve your financial performance.

Understanding your P&L statement is crucial for the success of your business. By following these five tips, you can familiarise yourself with the layout and terminology of your P&L statement and make informed decisions about your business’s financial health.

Who is ActionCOACH’s Business Coach Mark Dilks?

Mark Dilks is an accomplished business leader, experienced coach, mentor and business builder. He supports business owners, executives and teams across Milton Keynes, Bedford, Northampton, Luton & Dunstable in all aspects of building profitable high growth businesses; from start-up phase all the way through to maturity and divestment. No matter what challenges you are facing, Mark will invariably have encountered a similar situation previously and will be able to support you to quickly and efficiently overcome your business hurdles by sharing examples of how other business have solved similar problems that you are experiencing. He is motivated, driven, tenacious and is able to get the very best out of all the resources available to his clients and to ensure that the maximum results possible are achieved.