Every business needs to prepare financial statements and a profit and loss statement is one of the most crucial statements that a business needs to prepare. It is useful for improving financial transparency within a business. It can help business owners understand their operating cash flow. Along with the balance sheet and cash flow statement, it is one of the three financial statements that companies must prepare.
What is a Profit and Loss Statement?
A company’s P&L statement contains the details of revenue, capital and operational expenses incurred during a specified time period. Using this statement, a company can have an idea about its profit margin by increasing revenue and decreasing expenses. If you don’t know how to prepare these financial statements, you can ask the Melbourne bookkeeper.
There is no particular format to follow to prepare a profit and loss statement. Every company may have different statements based on its business model and the time covered by the report. There are various examples of figures that need to be included, such as:
- sales of goods and services
- sales of financial products
- selling, administrative and general expenses
- interest expense
- research and development expense
- provision for income tax
- provision for GST
How Profit and Loss Statement Can Help You Succeed?
Here are a few ways to use profit and loss statements to reach your business goals:
Keep in check your company expenses
It has been believed that administrative and operating expenses must not be more than 20% of gross revenues. To find your percentage, subtract your expenses from revenues and divide the resulting amount by revenues.
Prepare for tax season
By daily updating your profit and loss statements, you can keep your business books up to date. It will keep you prepared for tax season and as a result, it will reduce the burden on your shoulder when preparing a tax return.
Check how much you can reinvest in your business
Is it the right time to hire new employees, launch new products, and move to a larger facility? For this, you need to check your bookkeeping reports, such as profit and loss statements.
Importance of Financial Reporting
Without financial reports, it will be difficult for you to understand how well your company is doing from a financial point of view. Financial reports are not only important for investors or management to check the financial status of the company, but these reports are required by law for taxes.
Make informed decisions
Analysing and understanding financial reports is important when making financial decisions for the company. Financial reports help you identify new challenges, and trends and track the financial performance of the company. Staying on top of your financial statements will help you make economic decisions when it is the right time.
Manage debt
Financial statements help business owners to know the company’s current liabilities and assets. In addition to this, they can help manage their company’s outstanding debts.
Make tax season simple
Financial reports are required by law for taxes and these can be used to assess a company’s tax income. Accurate financial reporting can reduce the risk of error and save you time. It reduces the burden that comes along when lodging your company’s taxes each year.
Financial transaparency
Financial reporting is the best way to show the financial integrity of a company and build trust with creditors and investors. External stakeholders need to research a company’s financial position before they invest in the company.
If you run a business, make sure to prepare financial statements, including cash flow statements, and balance sheets. These statements will help you succeed. To get help preparing these statements, you can opt for bookkeeping for small businesses.
Conclusion
If you want to grow your business and spend money wisely, then make sure to prepare financial reports to make informed decisions. Moreover, if you need help preparing financial statements, you can get in touch with a Reliable Bookkeeping Services provider.