Benefits of Profit and Loss Statement for Small Business

• Posted on Jan 21, 2021
• |
• By Shrotriyo S

If you’re familiar with the world of small businesses, then you’re no stranger to the awful lot of statements that come with it. The most important of these financial statements being the Profit and Loss statement, which has existed for as long as huge corporates and small businesses have existed.

Now, what is a Profit and loss statement?  

The profit and loss statement is a financial statement which summarizes the revenues & expenses, that a small business earns or bears during a particular period of time, usually a quarter or an year. It is an accrual basis of accounting. The P&L statement is also called as the income statement.

Sample Profit and Loss Statement for Small Business – Zybra

The P&L may be a simple financial statement but, the importance of profit and loss account to a small business is immense. Some of which are following;-

Benefits of profit and loss statements for a small business.

Measure of Profitability

The guiding principle for any business is profit. Although there are other measures of net-profit in a business, a P&L statement paints a more nuanced, lucid picture of the business’s financial standing. The P&L statement not only specifies the Gross Profit but also makes it easier for you to assess the expenses to curb down & maximize the net-profit. Therefore, a profit and loss statement for a small business is of principal importance.

Comparison and Analysis. 

It is essential for small businesses to make regular changes to prosper in today’s dynamic market conditions. The importance of profit and loss accounts is also reflected on comparison of these statements from different accounting periods, as the change in revenues, operating costs, and net earnings over time are more meaningful than the numbers and statistics. For example, comparing P&L statements of different financial periods will not only help you rectify simple human errors, like overcharging depreciation but, also highlight more severe problems like poor debt collection in a particular year. 

Facilitates Raising Capital

Capital is one of the most important factor behind any business’s success. Be it a small or a mid-cap business, to raise further capital a company has to produce its financial statements. For small businesses trying to raise Small Business Loans from a bank or other financial institutes, producing P&L statements with improving profit margins for consecutive years is a positive step towards raising further capital. It also helps growing private companies to become publicly traded companies. The P&L statement along with other financial statements must be submitted to the Registrar of companies by the private company for the conversion into a public company. The P&L statement later acts as an analysing tool for the prospective investors during the Initial Public Offering. 

Although a profit and loss statement in small business acts as a financial barometer, it is fairly simple to draw and maintain. The above mentioned are the major benefits of a profit and loss statement for small businesses.

Here is a sample profit and loss statement for small business – Link To Sample PDF
Additional read – How to make a P&L statement.

• Posted on Jan 21, 2021
• |
• By Shrotriyo S
• |
• 0 Comments