How To Analyze Your Business Profit & Loss Statement

For many business owners, the Profit and Loss statement is something their accountant prepares each year for the tax department, the sole purpose of which is to reveal just enough to the bureaucrats so that their tax can be minimized. However, this powerful tool is probably the most underutilized one in a small business owners’ arsenal.

The P&L I usually see is just: Income – Expenses = Net Profit. That’s all the tax office actually need. They don’t care if some parts of your business are more profitable than others. If you have obvious opportunities to increase sales. That you are charging enough to cover the costs of all services. But YOU should.

Starting with the basics, for many business owners, their wage is what is left over after they have paid everyone else. This is no way to run a business. Your wage needs to be built into your invoices. By including your wage, plus the full costs of running your business, not just what the Tax Office needs in your P&L, you can determine how much you need to charge.

Next, where are you making money and where are you losing it? Almost all businesses have multiple products and services, so these need to be segmented in your P&L to reveal where the money makers are, and which are the black holes. This enables you to clarify your target markets and to quantify targets for your marketing.

Segmentation of your business also enables a better understanding of your Points of Difference, essential if your objective is not to be the lowest price vendor. This kind of analysis allows a laser focusing of your marketing greatly reducing cost and effort in generating new inquiries.

Typically the opportunities identified through this process cost little to nothing to implement which is why it’s a shame owner don’t identify them and implement the immediately. This kind of analysis makes decision making easy allowing you to implement with confidence driving dollars directly to your bottom line.

To achieve these outcomes you must have a model for your business that will: