As a business owner, you most likely know the term “P&L,” or the acronym for “Profit and Loss” Statement. However, just because you are familiar with the word does not automatically mean that you understand this integral part of your business.
It is of utmost importance that you have even just a basic grasp of this aspect of your finances, seeing that it tells a lot about how your organization’s finances are actually doing.
Since your finances are what basically allow your business to run, then you should already realize how crucial the process of understanding P&L statements is.
The clear picture it paints for you
At its core, it is a clear picture depicting your business’s revenue less its expenses. These statements, given that you know how to read and analyze them, provide you with a detailed report of the profits you make, as well as where the funds go.
The thing is, there is more to these P & L statements than just the brief description above.
Just how vital these statements are
One of the primary reasons you need to understand these reports is because you want to make certain you are meeting all your tax responsibilities. Essentially, it lets you determine your organization’s tax liabilities, so that you can satisfy all of them and ensure you are operating lawfully.
Furthermore, the law and your association memberships also require you to have these documents. From a business’ point of view though, it serves as a vital guide for your finance-related decision-making processes.
When you do not even have any idea of what is going on with your finances, then you are at huge risk of making pricey mistakes that can result in massive losses.
Overall, a P&L serves as the health report card of your business: it lets you in on how well (or poorly) your organization is doing. So as early as now, you have to familiarize yourself with the steps on properly reading and understanding it, as it can literally cost you and your business.