P&L Statements: Understanding the Lingo for Business Owners
I'm here to tell you get your head out of the sand. No, seriously, come up for air!
Also, I want to walk you through our profit & loss statements, also know in the business world as your P&L statements (ya know, if ya want to be one of the cool kids).
Your profit & loss statement is the bread and butter of your financials. It will tell you if you're having a kickass time or not this month. I'm going to walk you through the basics of reading it, and what you can do with it besides file it away the moment it's in your hands...
I created my own, fake statement so we can chat about it! Disclaimer - this is just for an example and shouldn't be used to create your financials. The intent it just to understand some of the basic lingo on your profit & loss statement.
Let's be real here, I won't be a florist. I'm not that kind of a designer, but this is a great exercise for florists and non-florists too!
Gross Revenue - Money we brought in for the year, and hot damn you can see we doubled our revenue this year vs. last year. Well that's awesome.
Cost of Goods - all direct, material costs related to producing the product delivered to the client. First off, we create floral designs, so I need flowers! We also need other items like ribbon for our bouquets, and items we're sub-renting directly to clients.
Net Revenue - This is your gross revenue minus your cost of goods.
Expenses - This is all other items we paid for that we pay for, but can't be isolated to one, single client event. Note, we can't include credit card processing fees as part of the cost of goods.
Earnings before taxes - How much money you've earned (or lost) for the year BEFORE income taxes are calculated.
Income Taxes - The tax man comes a calling, and let's be real - we know it is going to happen. The final income tax is based on your earnings before taxes for the year.
Net Profit or Net (Loss) - You can see we had positive balances both years, so we have net profit, but if we spent more than we earned, it would be net loss.
Simple and easy! Right?!? Mostly...
Brooke Olsen Consulting is a pricing and business strategist team. We specialize in pricing + profitability, financial education and business strategy for creative business owners and entrepreneurs just like you! We're focused on creating an intentional business and life by breaking down the black box of your financials and system processes. Check out our core values for more of the heart behind our corner!