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Being in business means expecting the unexpected – sometimes it’s great, sometimes it’s a little more work. Cash flow is one of the biggest challenges facing small businesses. According to Smart Data Foundry, 40% of invoices issued by small UK businesses were paid late in 2020-21. While the Government has launched the Fair Payment Code, which aims to help businesses get paid on time, it remains important to proactively manage your business’s cash flow.
Smart money moves start with knowing your numbers, and a useful tool for understanding your cash flow is a profit and loss statement. Also called a P&L statement, it’s a financial document that shows how much profit or loss your business experienced over a specific period – like a month, quarter or year.
What’s included in a profit and loss statement?
A profit and loss statement typically includes:
- Income – money coming in
- Cost of sales – costs to create or provide your products/services
- Gross profit – income minus the cost of sales
- Expenses – operating costs
- Net profit – what’s left after expenses
This statement helps you understand how much money’s coming in and going out, and where it’s going. The more regularly you use it, the better you can compare periods and spot any red flags. And when paired with other financial reporting tools, like a balance sheet, cash flow analysis and real-time analytics, you get a clearer picture of your business’s financial health.
What’s the difference between an income statement and a profit and loss statement?
Nothing! They’re just two names for the same thing. Some industries use ‘income statement’, but in everyday business, ‘profit and loss statement’ is more commonly used.
Template for profit and loss statement
Skip the hassle of starting one from scratch – here’s a profit and loss statement template to download. It comes ready to use, with easy instructions and examples that take you through creating your P&L statement. With this, you can better assess your business profitability and plan ahead for the future.
