Most current and potential business owners are highly familiar with the profit and loss statement, a vital part of a well-developed business plan. But they may not be as aware of its benefits as an internal measuring stick, allowing the business owner to check the pulse of the company and compare its performance to rivals.
Wise Business Plans — which provides individualized, custom-designed business plans for startups and expanding companies — says an up-to-date, accurate profit and loss statement is as important to the health of your business as an annual physical is to the health of its owner.
“Carefully calculated profit and loss statements prepared at regular intervals are not only a key tool for securing funding — they also allow the business owner to compare actual performance to predicted performance,” said Joseph Ferriolo, director of Wise. “Tracking profit and loss allow companies to accumulate a wealth of data, essentially doing a health check on the business.”
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Profit and Loss Statement Shows Financial Performance
A profit and loss statement, sometimes referred to as an income statement, offers a portrait of the company’s performance over a certain amount of time, showing the inflow and outflow of funds.
In addition to offering the business owner a chance to compare internal expectations to actual performance, a profit and loss statement can also help company leaders spot trends in performance, compare the company’s growth and health to its competitors, and spot problems before they become critical.
Ferriolo said business owners should focus on clarity when preparing a profit and loss statement.
“Whether you’re using an income statement for internal purposes or to secure funding, it needs to be easy to read with quickly access information,” he said. “When preparing profit and loss statements for our clients at Wise, we create easy-to-read charts that showcase the growth potential and strong bottom line of the business.
The information can sometimes be overwhelming; we make sense of it, making it immediately useful to business owners and lenders.” In the end, said Ferriolo, a clear, compelling profit and loss statement can be one of the strongest tools in a business owner’s arsenal.
“Know your business, not just its strengths but also its weaknesses — because then you can combat those weaknesses and overcome them.”
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