Profit and Loss Statements
Your business plan will outline how you will operate your business and what you will sell to make a profit. A successful small business knows which product or service they offer (or will offer) that gives the greatest return. Once you know this information you will be able to tailor your marketing efforts to maximise the return from each of your products.
Depending on what industry you are in, you will also be able to compare this performance of the product/service against industry standards. If you have yet to create your product or service, this will give you an insight into which product lines you should invest your time and resources in.
This information can be gathered from two primary places – your Profit and Loss statements, or P&L, and industry reports. Your bookkeeper or accountant will be able to help you out if you don’t have access to a P&L report.
A P&L is a Profit and Loss statement that small businesses use to show the income per product line, and the expense per category, with a net profit or loss at the bottom for a given period for the activity of the business.
To calculate the best product line for the business, simply convert the dollar amounts into percentages by dividing the dollar amount per category by the total revenue, and then multiply by 100. The highest percentage of your revenue is going to be the best performing product.
We have provided a comprehensive budget template file for you to use. In this file you will be able to set your budget for each month, and it will produce Year-to-Date figures, a basic Year-to-Date Profit and Loss statement (similar to Steve’s), and graphical charts about your best performing products. This file can be downloaded in our business resources section of the site.
Take a look at Steve’s results here. He thought his best performing line was fresh food goods. As you can see, his Green Goods category was his best performing product range. If he had built a plan with Fresh Goods as the main product line to sell, he would have missed out on an enormous area of opportunity.
Once you have gathered your data, have a look at your profit and loss statements. If you have them going back for over a year, then take a 12-month period, and calculate which product line raised the most in sales. Then you will have the information needed to set the stage for your Product Strategy.
If you have the industry standards, compare them to your results. If you have no data to compare, then use the industry standards as a target for your results to come. Using the information that financial reports can provide is a sure way to avoid becoming a business that achieves results through ‘unknown’s”.
Consider using and managing your own business finances if you don’t have a bookkeeper who can do it for you. Software products such as Quicken Deluxe 2012 or MYOB FirstEdge – Small Business Management and Accounting are often easy to use, and help you stay on top of your business finances. They can produce many different reports also to help you analyze your performance.
Maximize those areas that are performing well by analyzing your own Profit and Loss Statement.
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