One of several key financial reports for any business, a profit and loss analysis is all about improving your company’s bottom line. What exactly is a profit and loss analysis and how can it benefit your business? According to Long Island accountant Tom Beaton of Beaton Accounting, a profit and loss analysis is a critical part of understanding how well your business is doing financially. It’s a first step, he says, toward identifying areas in which your company can reduce costs and increase profit.
What It Is
A profit and loss analysis, according to Beaton, provides information that should be considered essential for any small business owner. It’s a summary of the revenues, costs and expenses incurred by a company during a specific period of time. It can tell you how well your company is doing financially in relation to your industry, and it shows you your debt-to-equity ratio to help you identify problem areas.
Profit and loss, Beaton says, involves a thorough review of your financial materials and an analysis of your company’s performance in relation to industry standards. It also includes an assessment of your insurance coverage to verify that your workers’ compensation, liability, umbrella, owners, auto and employee theft coverages are all sufficient.
“A profit and loss analysis can help you to understand how well you do in a particular season, for example,” Beaton explains, “or how well you’re doing one year as compared to another.” It can help, he says, to identify areas in which expenses have increased over time or which accounts are losing money.
Why You Need It
Most of the time, says Beaton, small business owners don’t take the time to examine their income. Instead, they stay focused on running their businesses, assuming that adequate money is coming in as a result of their efforts. This inattentiveness to the bottom line, Beaton says, all too frequently costs small business owners money they can’t afford to lose.
Where to Get It
According to Beaton, a profit and loss analysis will be most effective when performed by a professional accountant. While some well-intentioned business owners may attempt to do their own reporting, they often lack the necessary time, objectivity and expertise to analyze their own financial situations in such a way as to truly maximize profits and minimize liability.
“When a business owner tries to do his own accounting, chances are he’s not going to take the time to break out expenses in such a way as to identify specific problem areas,” Beaton says. “I tell my clients that if you do it yourself, you’re going to cost yourself 15 to 20 percent in profits.”
Beaton Accounting makes it easy and affordable for small business owners to get the expert analysis and advice they need in order to improve their bottom lines. Offering convenient on-site service, Beaton’s team of small business experts provides small business owners with the financial guidance and knowledge necessary to succeed.
