For a SME, a profit and loss account may not seem important, it may seem as if it is a document that is mainly required by big companies, however a profit and loss account can provide your business with information about your revenue and expenses that can give you a comprehensive insight into your businesses performance.
Without setting and accomplishing targets an SME will become stagnant. A profit and loss account can help an established SME make forecasts for future revenue based on past sales.
Understanding and analysing your profit and loss account can give you a detailed insight into you business and can tell you where you can improve and where you can cut expenses. To gain this insight you need to understand the basic components.
A great metric for analysing the growth of your business; gross turnover describes the total sales or gross receipts made during the year. Compare this with last year’s figures and you gain an understanding of your businesses growth.
Everything that you pay out for your business to operate falls into this bracket. The purchase of materials, utility expenses, factory wages etc.
Gross profit comes from the sale of goods that will be used to pay for the operating expenses of the business. Higher gross profits mean that the business will have more money to pay for salaries, rent etc.
This covers all expenses that do not come under “direct expenses”. For example, advertising costs, salaries and wages, commissions. These expenses describe the selling and administration cost of a business.
The most telling metric of a profit and loss account. The profit and loss document has two sides, the income part (credit) and the expenditure part (debit). The difference between the credit and debit will correspond to either net profit or net loss. A higher net profit means that a business is effective in converting revenues into actual profit.
A common issue for a business is unpaid invoices; this is all revenue that should be involved in your profit and loss. If customers do not pay you then it can impact on you businesses growth. Commercial Domestic Investigations offer a professional, quality service. Working closely with our clients we take the time to understand your business and design a strategy to recover your debts. Our highly trained team will work tirelessly whilst adhering to best practice. To discuss your requirements contact us on 08444 159200 or email firstname.lastname@example.org.