Understand your Income Statement — P&L

UNDERSTAND YOUR NUMBERS: An Incredibly Easy Method That Works For All

Your Business Income Statement — P&L 🧵👇

If you want to use your business as the vehicle 🏎 to wealth creation, then let’s start with understanding financial statements, in particular the Income Statement or also known as the P&L.

The Income Statement

This section of the financial report shows us how profitable the business has been 📈, which is basically looking at Revenue or turnover, then deducting your business expenses, or costs, to give us the profit made during the period.

So it’s telling us firstly, if we are profitable 😁

Secondly if we are efficient 😆

And thirdly how much money we have made! 🤗

This is the most important metric, we are in business to make money💰! If the income statement is showing a loss or significant downtrade, then we know we need to take immediate action.

We have 2 x types of profit shown here, Gross Profit and Net profit.

The gross profit is the profit we have generated in our business performing its operations 👷‍♂️ deducting cost of sales, or what is also known as cost of goods sold.

These are the costs directly related to your projects, goods produced or general operations in your business — or simply put the money we spend to make us money 🤝.

This excludes overhead costs, so an example of cost of sales would be:

If we were in the business of cleaning windows for example🪟, the cost of the window cleaner👤, the materials they used🧽 and any other travel expenses🚗 incurred in performing the act of cleaning the windows.

A very high level and very simplified way of looking at gross profit is that it gives you an indication of roughly how much of a return to expect before deducting overheads, for every £1 or $1 in revenue your business generates🤑.

To calculate our nett profit, we would take the gross profit as just discussed, and then deduct our overheads and finance costs.

Using the same example of the window cleaner, the overhead costs would include costs such as

The cost of marketing the business 📺

Cost of any office or rent 🏣

Cost of phone calls etc 📱

We would then arrive at nett profit which is the overall profitability of your business.

This figure will tell us if we are running our business successfully, if not 🙁which costs are preventing this.

This information will also allow us to make better decisions going forward 💪

Let me know in the comments section how profitable your business is currently, if you’d like to improve this then reach out on my DM.

My business coaching centres around creating wealth for business owners, so I’m sure I’ll be able to assist 👍

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