Source: Chris Nobbs – ABC Business
Understanding Your Profit & Loss Statement, Tip 1:
Sales/ Income You should be able to see the value of sales your business has made for the period. You should also be able to see the mix of sales if you are selling different types of products or services. This information can be compared to last year/ last month (to see how your business is tracking versus history) or against a set budget. The sales mix can be valuable in understanding which products or services are more important to your business and customers. Your sales can also be converted into an average sales transaction by dividing your total sales by the number of transactions in the period.
Understanding Your Profit & Loss Statement, Tip 2:
Your business Profit & Loss statement shows you the day to day health of your business. If your financial information is kept up to date your Profit & Loss statement will be able to show you a number of key things:
Cost of Sales These are all the direct costs of making a sale in your business. If you are selling a product that you have manufactured these direct costs would include the materials/parts purchased to make the product as well as the labour (staff) cost to make the product. These costs of sales should never exceed the total actual sales for the period and as a rule should not be any more than 70% of sales.
Understanding Your Profit & Loss Statement, Tip 3:
Your business Profit & Loss statement shows you the day to day health of your business. If your financial information is kept up to date your Profit & Loss statement will be able to show you a number of key things:
Gross Profit This is the direct profit that you are getting from your sales before you take away business expenses. Your Gross Profit is calculated by taking your Cost of Sales from your actual Sales/Income for that period. If you are selling different products or services it would be important to understand the different Gross Profit margins of the different products and services so you can look to improve products/services with low margins as well as try to sell more of your higher margin products/services. Gross Profit margins can vary across different businesses and industries, however you should be aiming to keep gross profit margins higher than 30% of sales.
As part of a complete analysis of your business, ABC Business Coaching has a unique program called “Business Manager”. We plug your current and former Profit & Loss numbers into the program to offer you the most comprehensive appraisal of the trends, break evens, business sensitivity factor and much, much more.
Understanding Your Profit & Loss Statement, Tip 4:
Your business Profit & Loss statement shows you the day to day health of your business. If your financial information is kept up to date your Profit & Loss statement will be able to show you a number of key things:
Expenses These are the indirect running costs of your business. These can include rent on premises, telephone, electricity, vehicle costs, office expenses, non direct staff costs (eg administration staff, management staff etc), insurances etc. A number of your expenses will be fixed meaning that whether your sales are $1 or $100,000 for a period that cost will stay fixed for that period of time (eg rent on premises). This means that the more you sell the more leverage and increase in your net profit (as a percentage of sales). The other expenses are variable and will increase or decrease depending on sales levels (eg telephone usage, vehicle usage). The expenses of your business should never be higher than your business gross profit for the period.
ABC Business Coaching will always work in concert with your accountant. We don’t mean to take over from them. Our “Business Manager” program looks at your numbers with a different and forward perspective. We plug your current and former Profit & Loss numbers into the program to offer you the most comprehensive appraisal of the trends, break evens, business sensitivity factor and much, much more. E-mail me now to start the process of finally receiving a comprehensive appraisal of you business financials.
Understanding Your Profit & Loss Statement, Tip 5:
Your business Profit & Loss statement shows you the day to day health of your business. If your financial information is kept up to date your Profit & Loss statement will be able to show you a number of key things:
Net Profit/ Operating Profit Put simply this is the net amount of money that your business has made over a given period (usually before any interest or tax is paid). This amount will be your total sales/income less your cost of sales and all of your other expenses. This is the amount that your business will be required to pay tax on at the end of each financial year. You should be aiming to maintain a net profit of in excess of 10% of sales for any given period.
Alternatively you could engage the services of ABC Business Coaching to fully, independently and objectively appraise your financials whilst developing a better financial plan for your future. Email me now to commence the process. We can have a chat and take it from there. You have nothing to lose but plenty to gain!
Understanding Your Profit & Loss Statement, Tip 6:
Your business Profit & Loss statement shows you the day to day health of your business. If your financial information is kept up to date your Profit & Loss statement will be able to show you a number of key things:
Take some time to print out your own Profit & Loss statement for last financial year or year to date this year and examine each of these areas. Write down a hit list of areas where you feel you could improve on and then make a plan to improve. Share your financial information with key staff so that they are aware of the situation, then empower them to help you to improve sales, reduce costs of sales, and more closely manage business expenses. Just by increasing awareness and more closely measuring you will see immediate improvements.
As part of a complete analysis of your business, ABC Business Coaching has a unique program called “Business Manager”. We plug your current and former Profit & Loss numbers into the program to offer you the most comprehensive appraisal of the trends, break evens, business sensitivity factor and much, much more. E-mail me now to start the process of finally receiving a comprehensive appraisal of you business financials.
Understanding Your Profit & Loss Statement, Tip 7:
Your business Profit & Loss statement shows you the day to day health of your business. If your financial information is kept up to date your Profit & Loss statement will be able to show you a number of key things:
Once you better understand your own business financials look at setting a monthly or yearly budget for the business. Work with your key staff to set budget goals for sales, gross profit, expense targets and an overall net profit budget. Consider developing a staff incentive/ bonus linked to this budget, and ensure that results are measured against these agreed budgets monthly. Effective budgeting and measuring of results can be a key motivational tool for staff and can also assist with cashflow management and when seeking bank refinancing.
ABC Business Coaching can assist you with creating a budget for the next 12 months. It doesn’t matter which 12 months you are looking at and it doesn’t matter when you begin your budget, just start the process. A business without a budget is a business out of control.