How do you know if your business is successful? You can look at online reviews, the number of customers, and other similar things. However, these are abstract ways of judging a company. A better way to gain insight into the viability and success of your business is to create a profit and loss statement.
Your external professional accountant will likely assist you in the creation of the statement that will help you analyse your business performance. Let’s take a look at the critical components of this financial report and why it is important to create a profit and loss statement for your business.
Key Components of an Income Statement
Your profit and loss statement will include the following three main components:
- Income: This refers to the operating revenue you generate from your regular business activities. You may be selling a product or collecting fees for service. The income section will also contain any non-operating revenue or income that isn’t generated from the business’s primary activities. This may include rental or business capital interest.
- Expenses: Your profit and loss will include an expense section comprising all the costs incurred in manufacturing the product. These are called the cost of goods sold and consist of the cost of materials and labour. Other primary expenses refer to the cost of doing business, such as expenditures related to employees’ salaries, utilities, marketing costs, etc.
- Net Income: The last component of your income statement is the net income section which is the number found when deducting all expenses from your income. If the number is positive, it means you’ve earned a profit. On the other hand, if it’s negative, it means that you’ve incurred a loss.
Why Create a Profit and Loss Statement?
Your income statement is a crucial financial document that indicates the profitability of your business. You can use this information to determine if your company is generating enough revenue to cover your costs. It can also be used to see if you can pay yourself as a business owner and whether your model is sustainable.
The P&L statement can also provide insights into expenses that can be cut down to increase profits. You can focus on things that make you money and try to optimise your manufacturing process if you manufacture and sell products.
Hire Expert Financial Reporting Services in NSW
If you’re looking for highly professional, qualified, and reliable accountants to help you create your business income statements and balance sheets, check out the accounting and tax advisory services at Ace Biz.
Our experts are highly skilled and hold significant experience in helping individuals and businesses with their complex accounting and taxation needs. Reach out to us directly for more information on our management reporting services in Sydney!