The Profit and Loss Report - To fear it or Not

For many small business owners, the Profit and Loss Report can be something we fear or love. Should we fear it? ABSOLUTELY NOT! In tough economic times we may cringe when our bookkeeper gives us the weekly or monthly report and we have dispersed more money than has been generated. It is a tool that we should embrace because the report is there to assist us in making sound business decisions. The Profit and Loss report breaks down our business in two ways: Revenue and Expenses.
From looking at the report on a weekly and/or monthly basis we have a snapshot of what revenue has rolled in and what expenses we have paid out on. This report can help us determine if we have enough revenue coming in or if we need to make some adjustments to bring in more revenue. We can compare the report to last year’s (or month) report to see what is different for us. Is there industry trends that affect our Profit and Loss (i.e. traditionally a slow time)? Should we expand the services or products we offer to our customers? By monitoring the report from a revenue perspective we can project what we may want to spend in upcoming budgets.
So let’s address the other side of the Profit and Loss report….the expense end. There are monthly expenses that we HAVE to pay to keep our business operational. Those expenses may vary business to business but some typical expenses are: advertising, rent, utilities, office supplies, payroll, taxes, and repairs / maintenance. Some expenses may be adjusted depending on the revenue – we may have some “extra” money so we increase our advertising efforts or purchase a new piece of equipment.
Other expenses are fixed – we pay the same amount in rent or on loan repayment regardless of how our revenue fluctuates. Expenses like telephone and electricity are expenses that we need to pay monthly but we may be able to take up on a great telephone plan that helps to save us a little money each month or switch to equipment that doesn’t use as much electricity as some older models may.
I have to warn you; something as simple as a onetime big purchase that will generate huge profits from here on out can cause a monthly Profit and Loss to fall into the negative. View the purchase as an investment in your business and not as a “bad” decision. The purchase could range from a new piece of equipment to an advertising campaign to that consultant that will work with you short term to help grow your business.
Advertising and Marketing is one of those business expenses that we incur that helps generate revenue. What works for one industry may not work for another industry. Word of mouth is free but enough! So it is always good to try something new and see how it works. A new advertising approach may take a little time to generate results so don’t be discouraged when nothing immediate happens! If you advertise in a newspaper and clearly do not have any business from it after a few months then invest the money somewhere else. So in a nutshell, view your Profit and Loss as an old friend who wants you to succeed! We have all cringed when the report shows a negative but look at from the perspective of what can I do different? Am I on a good track for my business? You will know right away and you will make the right decision for you and your business!

New developments

Hi All,

On Monday August 17, 2009 I begin my Enrolled Agent training! I am excited to one day be an Enrolled Agent and serve the North Country.

You may be wondering what an Enrolled Agent is? Well....simply put.....An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.

So what does this mean to you? What it means is if you receive a notice that you are being audited by the I.R.S then give me a call and I will do my best to help you out through the audit process.

So check back in for updates on how my training is going.