How to do a Profit and Loss Account?Published on 11th December 2018
Maintaining a business is hard work and requires constant attention, but in order to make sound decisions for the future, you need to have all the relevant information to hand. That’s why preparing a Profit and Loss account is so important. Without it, how will you know whether your finances can support further growth or if additional funds will be needed in the near future? Only by having all the facts at your disposal can you hope to make informed decisions, especially when it involves your business’ finances. So, how you do you prepare a Profit and Loss account, and what does it involve?
Why should I prepare are Profit and Loss statement?
Getting familiar with how to set up a Profit and Loss statement is an important responsibility for any business owner, and for two reasons. Firstly, generating Profit and Loss statements on either a quarterly or monthly basis enables you to develop an in-depth overview of how well your business is performing. It allows you to ascertain whether you’re in profitable or if urgent changes to how you operate are required, in a timely manner. This way you can identify any potential issues and form an effective strategy before they get a chance to manifest into something more harmful. Secondly, if you’re considering finance in the near future, lenders may require you to submit your Profit and Loss statements with your application. Again, this enables them to review your business’ performance, plus whether you can afford the agreement.
Do your Profit and Loss statements show that your business is loss-making? Need access to urgent capital support? Apply for Working Capital Finance or learn more about how your business could benefit.
What is included on a Profit and Loss statement?
If you’re wondering how to set up a Profit and Loss statement for your business, know that it doesn’t need to be complex, but does require you to be detailed. Simply put, it is a sheet detailing your business’ Total Income and Total Expenses for a specific period. As such, what is included on a profit and loss statement might involve anything from:
- Total Income and Turnover: product/service sales, subscriptions, customer fee payments, fully paid business-to-business (B2B) invoices and any other sources of income.
- Total Operating Expenses: staff wages, supply costs, utility bills, insurance, purchases, to repairs. Plus, if you’re wondering whether depreciation goes on a Profit and Loss account, the value of the assets on your balance (equipment, machinery, vehicles or furniture) will also be present.
How to work out the percentage of Profit and Loss?
Still unsure about how to make a simple profit and loss statement that clearly shows how well your business is performing financially? One way of achieving this by calculating the percentage of Profit and Loss. So, incorporating all the relevant details, the first step to take is to calculate your business’ Net Profit using the following formula:
Net Profit = Total Income - Total Operating Expenses
From here, you then divide your Net Profit by your Total Income before multiplying the amount you receive by 100, giving your business’ Profit and Loss percentage. A working example of this may look like the following:
|Total Operating Expenses||£79,500|
£25,500 / £100,000 = 0.205
0.205 x 100 = 20.5%
Need help supporting your business?
Coping with the needs of running a business in the UK can be demanding. But by establishing effective forecasting and monitoring processes, you’ll be in a stronger position to make informed decisions concerning the future of your business and, in particular, your finances. That’s why it’s so important that you regularly update and generate Profit and Loss statements, enabling you to develop your appreciation of how well you’ve performed during a specific period, as well as whether any additional support is required. If you do find you need additional support, one way of doing so is by applying for Working Capital, which could provide access to business finance solutions such as Merchant Cash Advance, Invoice Finance, Overdraft Replacement and Asset Refinance. Plus depending the product and the nature of the request, you could receive an agreement in as little as 48 hours, with the funds arriving soon after. All you need to do is source an agreement from a lender you can trust, which is where we can help.
At Rangewell, we’re an Access to Finance specialist working with over 350 lenders to offer you a comprehensive overview of more than 23,000 business finance products. Our services are free to use for business owners and their advisors and we’ll also guide you through the application process. So if your Profit and Loss statements show that your business is making a loss and needs urgent support, apply for Working Capital Finance today or find out more with Rangewell.
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