Beyond Taxes – How Your Profit

You would be surprised how valuable your Profit & Loss Statement is and how it can help you manage your business. It can show you if you material, fag or administrative costs are too high or too low. It can also show you the trend in your business so that you can capitalize on favorable trends and mitigate negative trends. And finally, your Profit & Loss Statement can wage the foundation for creating a budget and truly enable you to get control of your costs.

Most small-business owners think of their record-keeping as a necessary evil that is useful only for the preparation of tax filings. But your Profit & Loss Statement is much more than that. Comparing the current year financial activity to the prior year can tell you how your business is progressing – whether the trends are headed up or down. If they are headed up then you can expand on what you are doing right. This will increase your profits and make your business stronger. Conversely, if the trend lines are heading down, you can refer what is causing the negative trend and then make changes to rectify the situation. Maybe your calibre is slipping or your vendors are causing delays in the production cycle. Whatever the problem, by figuring out what is going wrong, you are sure to improve your business.

Another useful tool is calculating costs as a percentage of sales. This calculation will tell you if your material or fag costs are too high and show how your selling and administrative expenses are tracking against sales. Costs that are too high will eventually place you out of business. But costs that are too low are a real danger too. It could indicate a decrease in product calibre or reduced customer service.

By digging a tiny deeper you can refer which product lines are most profitable. It might surprise you that a product receiving tiny attention has a great gross profit. That is your starting point for a marketing program to near a product with low income volume but great gross profit potential.

Your Profit & Loss Statement is also a useful tool for creating a budget. Once you have identified your income streams and costs, you can estimate what those items will be next year. It might surprise you that a small increase in income without a corresponding increase in costs can have a dramatic positive effect on the profitability of your business. At the same time, increased costs without a corresponding increase in income can cut deeply into the profitability of your company. This is especially true of fag costs which are often the highest cost in a business.

So take a few minutes and look at your Profit & Loss Statement. Compare it with last year and see how your business in progressing. Then look at those percentages to see if your costs are too high or too low. You will be surprised at how much valuable information is acquirable just by reading your Profit & Loss Statement.

Beyond Taxes – How Your Profit

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