Any business, new or established lives by the outcome of their profit and loss statement. Most businesses have this available on a monthly basis and many accounting programs available for the home computer can be programmed to print this out every month or whenever the business owner wants to see how the business is performing. Provided the owner makes a conscious effort to input all income and expenses into the right categories on a daily basis, the monthly plan should be able to give a good representation of the business health.
Many companies view their monthly plan as their report card, whether they have 100 or more employees or own a sole proprietorship. Understanding how the plan works can also help separate income from profit and resulting confusion that has resulted in the death of many businesses. Understand, when working for someone else payday is usually once a week, or twice a month on a set schedule. For a business, income can roll in at many different times of the week, sometimes daily and if the business owner views this income as profit, freely spending it as it comes in, they will soon find they have no money to pay their bills.
A plan is actually the result of two separate statements. One is the income statement that tracks every penny that rolls into the business on a daily basis. Anything that is classified as income appears on this statement. Some items, such as accounts receivable, that is money owed to the company are also on this statement, but under a separate heading. You can view actual income, expected income to get the total income generated during the month.
On the expense side of the ledger will be anything you have to pay in order to operate the business. From rent and utilities to wages and business licenses will be listed on this statement. If you have bills due that have not yet been paid on the last day of the month, they will also be listed, but under a separate heading. Expenses can be divided into two master categories, controllable and uncontrollable depending on the nature of the expense.
For example, your rent and utilities are usually considered uncontrollable, meaning except for minor adjustments you can make to the thermostat for heat, the expenses are pretty much going to be the same every month. Insurance costs, medical expenses and any licensing agreements will be under uncontrollable expenses. Controllable will include things like payroll and anything you had to throw away because it became damaged by you or someone who works for you.
Once all the expenses are entered and added up, they will be subtracted from the total on the income statement, and anything left over is profit. If the expenses exceed the income, it is a loss and very few businesses can survive with too many losses. By looking through your plan you can search for available ways to reduce expenses while exploring opportunities to improve income. It is the bottom line profit that will create wealth for the owner and not the income.
Author Resource:-
Obinna Heche. Los Angeles - California
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