Steps to Creating a Profit and Loss Statement

Profit and loss

Profit and loss

Learn about the vital steps to manage your profit and loss documents.

Do you know how to create a profit and loss statement? And do you know why creating a profit and loss statement matters?

Believe it or not, it can be a primary building block for figuring out your finances, goal setting, and determining how much potential you have to grow.

 

How Do I Create a Profit and Loss Statement?

Figure Out all of Your Revenue Streams

Before you get started on your profit and loss statement documents, you need to make sure where all of your money is coming from. Do you have multiple products? A plethora of customers? It’s time to figure it all out.

The Co-Founder and CEO of Nue Life, Juan Pablo Cappello, knows how important this is firsthand.

“As a mental wellness brand, we have multiple streams of revenue coming in all the time. We have several different service options, multiple subscription models, and so many customers… it can be a little hectic getting all of that information together…, especially at the last minute,” explains the CEO.

An important first step to putting together a profit and loss statement is making sure that all of your resume streams are correctly filled and sent to the right people and departments so that everything can be compiled correctly.

Bonus tip: Additionally, this is a fantastic opportunity for you to keep an eye on the numbers related to your statistics. Who is the most likely demographic to purchase your product? Why might that be? And which products and services are performing the best? That can help with your marketing strategy.

 

Subtract What You’re Going to Spend

Unfortunately, it isn’t obvious to everyone, but your profits aren’t just all of the revenue you’ve made. You have to subtract what you know you’re going to spend in order to get an accurate representation of what your profits actually are for this spending period.

“You have to take everything into account. Make sure that you have enough money set aside for materials you’re going to use… especially for the stuff that you know always sells out or is especially popular.” This helpful tip comes from the Co-Founder of Andar, Eric Elggren.

And Elggren has a point about making sure you have enough of what you need. Keep an eye on how much of what item sells, if you’re creating products for sale. It’s also a good time to figure out what isn’t selling as well, so you don’t put too many resources or too much energy into what won’t serve you long-term.

 

Make Sure You Have the Proper Storage and Processing Power

Rob Bartlett, the CEO of WTFast, made sure to put this information up at the top of his priorities.

“Make sure it’s impossible to lose the information you collect,” Bartlett encouraged, “because if you lose it you might have to do everything all over again. Don’t waste your time. Make backups of your backups, and file away hard copies too… if you can.”

It’s vital to make sure you are always as safe as possible with your work, especially if you know that losing the data could set back your workload for a long period of time. 

 

Do Cross Referencing

Getting multiple sets of eyes on your work sounds like it could help you avoid a lot of money mistakes. But how important is it?

“If you can get a lawyer to look at it, even better,” says Max Schwartzapfel, the CMO of Fighting for You, “but make sure that other people are reviewing your work. You want to make sure that you aren’t forgetting… anything. You want to make sure… all of your legal bases are covered as much as you possibly can.”

Additionally, making sure that you get your own eyes on the work a financing team is putting together can help you make sure that you also know what’s going on. Down to the nitty gritty details, “Stay on top of your finances. Don’t [just] leave that up to others,” says the American musician, Leif Garret.

 

This sounds like it’s a pretty significant step to the process. Not just because it could take away some extra time from someone else’s workday, but also because it helps to make sure you’re doing everything as carefully and accurately as possible.

 

Check Your Formatting

“There’s no use in doing all this work if you can’t read it,” pushes the Founder and CEO of Embroker, Matt Miller. “Make a key, make sure your documents actually make sense to you, and… don’t make up a random key that won’t hold up over the course of time.”

Making sure that the work you’re doing will be able to stand the tests of time is important. After all, you want to make sure that the work you’re doing is as sustainable as possible.

Following the same keys, and filing the same information the same way, overtime is going to help you streamline and save time on the process as you perform it quarter over quarter and year over year.

Additionally, make sure that if you gave that information to an outsider it would actually be understandable to them as well. That is unless you have your own financing department.

 

Why Do Profit and Loss Statements Matter?

Obviously, profit and loss statements matter, but do you know why they matter? It’s not just for making sure that you can file your taxes correctly, although they can certainly help you get everything in order and organized for those as well.

They can get you ready for even more success, helping you plot out the points for the next goals you want to set and reach over the foreseeable future. They can also keep you organized for more than just tax season.

 

Figure Out Your Potential to Grow

How can filing away all of your financial information correctly figure out what else you’ll be able to do in the future?

“It can definitely help you figure out if you’ll be able to invest your profits… down the line,” says Jared Hines, the Head of Operations at Acre Gold. “Whether that’s gold or stocks or crypto, or something else entirely… make sure you know how much you can grow.”

Making sure that you’re able to grow in a sustainable way, as well as checking in on your potential for growth and success, can help you figure out how flexible you can be in the future. Do you want to pull out some of those investments to reinvest them into the company? Now you have even more room to play.

 

Make Sure You Can Pay Paychecks and Benefits

Along with making sure that you’re doing everything legally and honestly during tax season, it’s incredibly important that you make sure you can keep your promises to your employees.

“Employees are what make everything possible for any company. No doubt about that. Make sure that you can take care of everyone’s paychecks… their benefits, their bonuses… Because it all matters,” explains Rachel Blank, the Founder, and CEO of Allara.

 

Reach Your Goals

One of the upsides of having a little bit of flexibility, as mentioned previously, is that you can expand upon what you want your company to accomplish and how you want to get those accomplishments met.

“Give yourself some growing room, and really don’t give yourself permission to… hold yourself back. Keeping track of everything financially” says Ryan Rottman, the Co-Founder and CEO of OSDB, “lets you take on new ventures, from services to products to hiring more team members to take on the expanding needs of your company.”

After all, as Myles Munroe, the business guru, says, “You need to treat your finances as a resource God has provided to fulfill your vision, not a tool to fill your life with luxuries.”

Focusing on the morals and higher goals of your company, rather than just making money and keeping profits, is an incredible way to think about finances.

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