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Business Financials – What is a Profit and Loss Statement and what does it reveal?

images/Business Financials.JPGMany business people want to know what is a Profit and Loss Statement, and understand what does it reveal to us.

It is one of the main business reports we use, and what does reveal is how the business is going financially in a trading period  (whether you are making a profit or loss for a period) – it is also called the Profit & Loss Statement or Income Statement or Trading Statement.

The statement shows all the sales for a period less the cost of goods (if you sell product) which leaves Gross Profit, then from that all the Expenses (operating or overheads like rent, wages etc) leaves  the Operating Profit (not always reported), then from that less any non-regular income and expenses, gives us the final Net Profit.

In summary, there are three main levels of profit or profit margins

Gross profit (after cost of sales deducted from sales/revenue),

Operating profit (sometimes given = after expenses deducted) also known as Pretax profit (before tax and other non-regular items) and

Net profit (Final, after tax and other non-regular expenses and income).

Note that “profit”, “earnings” and even “income” are all used interchangeably, and mean the same thing.

When the term "margin" is stated, it can apply to the dollar number for a given profit level and/or the number as a percentage of sales/revenues.

The absolute amount, the dollar amount, is on the Profit & Loss Statement. The net profit margin commonly uses the percentage calculation to provide a measure of a company's profitability on a historical basis (3-5 years) and in comparison to peer companies and industry benchmarks. The margin is the amount of profit (at the gross, operating, pretax or net level) as a percent of the sales generated.

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much!

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Cash Flow tip – Improve cashflow in small business – Invoice promptly is the top way!

images/CashFlow.jpgI know from our clients, that many small business people are uncomfortable asking to be paid, yet the top way to improve your cashflow is by invoicing PROMPTLY!

When you run a business, (especially for service businesses) if you don’t invoice promptly as well as collect payment promptly (which causes a cash crisis in the first place), then consider the following consequences –

Consequences of delay for your cashflow:

  1. Clients can quickly forget what they owe you;
  2. They are less likely to remember how much they loved your work and pay you promptly;
  3. They may conclude that you do not expect quick payment and will take their time in sending in their money.

Some ACTION steps:

  1. Where possible, issue invoices at the time services are delivered;
  2. Send your invoice by email to speed the process;
  3. If you can’t issue immediately, be sure to issue your invoices weekly, or at least twice per month on designated days, such as on the 15th and 30th or the last day of each month;
  4. Do it like clockwork – it will help to even out your cashflow.

Take-away message and case study - Create the habit - invoice quickly and often!

Part of our service is assistance with cashflow budgets, debtor collection and reviewing supplier costs and terms. One of our clients said the business finance is now in the BEST shape it has ever been – our 4-5 hrs work weekly, involves managing the invoices, payment follow up (unique method) and now supplier payments! The owner now can catch up on quoting jobs and finalizing the sale to grow the business.

Could this assist you in your business and let you focus on your best skills and on running the business?

If you would like to speak with these clients, email me and I’ll supply contact details!

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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