Tuesday, July 3, 2012

How and How Often Should You Review Profit and Loss

Part of the power of accounting software like semi-automated online bookkeeping sites comes from the reports and accounting sheets they let small business owners create. But things like a profit and loss report is only valuable if you use it. Even if you lack an accounting background, you'll need to figure out an effective way to review your profit and loss statement at regular intervals both to check for accuracy and to monitor your business' activities so that you can make the right business decisions. How often should that be and what should you actually do?

Your P&L statement allows you to optimize your busies and maximize profits. So you're going to have to keep up with it. Based on the pace of your business and your schedule, set a regular time to review this statement. Every week is good in a brick and mortar or online sales environment, again depending on sales volume. Once a month can be fine if you don't do a lot of business. Once a quarter is the absolute bare minimum but you really should ask yourself how committed you are to your business if you can only manage one hour a quarter to review your business' activities.

The profit and loss statement will show you your net profits for the reviewed period. If you want to go into more detail, you can break down revenue stream by type, like online or credit card versus cash, and similarly divide expenses into categories. This helps you examine what's actually happening to your business' money, which is important if you want to use the information to make business changes to optimize profits. This information will be most useful if you set profit goals for each month. Even if you don't reach them, you can alter them for the next month so they still encourage you to seek improved efficiency. Specifically, with profit goals you'll look at all your areas of expense to see where you're wasting money, and at your revenue to figure out if you can increase your income.

This process will probably be sufficient for most small business owners. Going into any more detail than this may leave those without a strong sense of accounting feeling lost, confused, or like they're making mistakes. However, the P&L is just the tip of the iceberg of useful accounting tools. If your business succeeds you'll probably want to figure out more ways to utilize it better, such as to help you generate and understand monthly cash-flow reports. But you can't do any of that until you figure out the basics of the profit and loss statement and when to review it.

Reviewing Profit and Loss Data at Regular Intervals Is One of the Easiest Ways to Keep an Eye on the Financial Health of Your Business. Get P&L Help at http://www.outright.com

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