Profit & Loss Sheet: A Business Owners Best Friend
Just because you’re scared of numbers doesn’t mean you have to be financially illiterate. In fact, if you want to grow your business you definitely need to befriend your profit and loss sheet (P & L). A P&L is the document that will house all your revenue streams i.e sales, services, other income. The less exciting half of your P &L is the expenses. This is where your fixed, variable, sales, general, and administrative expenses live. Full Guide to understanding your P & L below
Visualizing Your P & L
I want you to take a long hard look at this sheet. Think happy thoughts. This is your new best friend. You’re P&L will always be there for you … even when you don’t want it to be. Now the most most important part of your P&L is your bottom line. Although you may be racking in $100,000 and are feeling good if your expenses total $90,000, you’re only taking home $10,000 … yikes. A way to avoid this is by protecting your gross margin at all costs.
Word of Advice
You know what they say, keep your friends close, and keep your enemies closer. Well, I have a more suitable one for startup builders. Keep your revenues close but your expenses even closer. Although we naturally want to gravitate to the positive cash flow, your expenses are going to be what keeps you from growing. This pandemic has forced all of us to form a good habit of “trimming the fat”. Expenses sore. At first, it’s paying for Canva Pro as a nice way to improve your content. Then, you decide that Asana will greatly improve your team’s productivity. Next, you fall for the ease and convenience of Buffer. All of a sudden you’re paying out a couple hundred dollars a month on potentially unnecessary expenses. Don’t get in the habit of taking on new expenses out of convenience. Be sure to only scale necessary expenses.
Have you implemented my advice in your startup? Leave a comment, I’d love to hear how it worked from you.