Small Business Profit and Loss Statement

A Core Financial Report

The Profit and Loss (P&L) statement is a financial report that summarizes the revenues, costs, and expenses incurred by a small business during a specified period.

P&L statements are often referred to as Income Statements, Earning Statements, or Statements of Operations.

These reports indicate how businesses convert revenues into Net Income and whether companies generate profit or loss over a period.

Profit and loss statements are usually generated yearly, quarterly, or sometimes monthly.

Small business P&L statements, along with Balance Sheet Statements and Cash Flow statements, the three core financial reports used and issued by corporations. When used together, they give an in-depth assessment of a company’s financial performance.

When compared with prior periods, they reflect even better insight by providing account-level financial changes of a company over time.

Profit and Loss statements only report tangible items: they do not account for non-tangible items of value, such as a company brand.

Small Business Profit and Loss Template

The P&L statements follow a set format.

They begin with an entry for Revenues (also referred to as Sales or Top Lines). From there, they subtract amounts spent for Cost of Goods Sold (for product-based businesses), subtract Operating Expenses, Interest Expenses, and Tax Expenses. The balance is the Net Income of the company, commonly referred to as the “bottom line.”

Below is a small business Profit and Loss Statement example that can be used as a template for a company selling products.

Fig 1: Sample Small Business Profits and Loss Statement Template

Accounting Methods

Profit and Loss statements are prepared differently depending on whether a small business follows the Accrual or Cash Method of accounting.

The two methods direct how and when income and expenses are recognized.

The Accrual method recognizes revenues and expenses when earned and invoiced. In other words, small businesses that use this method record revenues when sales are made rather than when payments are received. Similarly, these businesses record expenses when purchases are made and invoiced to the company rather than when payments are subsequently sent to their vendors to settle invoices.

Conversely, the Cash method, used mainly by small businesses, recognizes revenues and expenses when monies go in or out of the company. In other words, small businesses using this method only record revenues when they receive payment for the sale. Similarly, these businesses only record the expense for items purchased when they pay their provider for those items.

Monitoring Your Company's Profit and Loss

Managers and investors use P&L reports to measure the financial performance and profitability of businesses.

Small business lenders use that information to assess a company’s ability to generate cash flow and repay its debt over time.

The Profit and Loss statement is a report that every small business owner must track regularly. Whether to monitor the financial performance of the business and or to ensure that needed financing is available when needed, a healthy profit and loss statement will be required.
 
If you would like BorrowPartner to send you a free copy of the sample P&L statement template spreadsheet in Figure 1 above, simply contact us here.
 

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