What Insight Can You Get From Your Profit And Loss Statement

Monday, 1 Jul 2019

If you have been running a business in Sydney, you must be well aware of the income statement or the profit and loss statement. As the name suggests, this document provides the details of the organisation’s expenses and sales over a specific period of time. The report can be generated monthly, quarterly or yearly depending upon the needs of the business.

It is a vital piece of information as it measures the financial health of an organisation by determining the profits generated and costs incurred. Your bookkeeper in Sydney can provide you with these regular reports which are picked up by the investors or banks to decide whether the organisation is worth their investment or not.

Additionally, it provides an insight into what is working in favour of the business and which business functions are lacking to allow the owner to make informed decisions. Let us know about the valuable data that can be retrieved from this document with the help of a bookkeeper to make the required amendments in the organisation.

Total Sales/Revenue And How To Improve It

The income statement gives the account of total sales which includes the money received from the sale of goods as well as the gross profit. The gross profit is different from the net profit as gross profit is the amount of total sales after deducting the cost of goods sold and without considering the expenditure of operating the business in Sydney.

On the other hand, net profit illustrates a more transparent picture as it includes both the cost of goods sold and operating expenditure. There are various profit ratios which can be utilised by the bookkeeper to analyse the problems in the organisation and averting any future projects with similar policies and procedures to avoid further damage.

Some of these are net profit margin ratio, gross profit margin ratio, gross profit vs. net profit and return on investment. If you get good returns, then you can repeat the winning formula to do well in future. The figures from the current financial year can be compared with the figures from the previous year to understand year-on-year growth.

Your bookkeeper can also help you to compare the industry benchmarks for gross and net profit with the internal profits to get the bigger picture. For example, if you are operating in Chatswood, Randwick, Parramatta or any other suburban region, you can compare your profits with a similar business based in Melbourne and its suburbs.

You can also make revenue projections on the basis of the sales figures. It also helps to identify the seasonality aspect which is the change in the sales based on the change in the season. Some businesses might perform better in winters and others in summers so the business owner can think about avenues of increasing the viability of the business throughout the year.

Total Expenditure And How To Reduce It

This includes a long list of all the operating expenses incurred by an organisation in Sydney ranging from the lease, loan payment, maintenance, and motor vehicle expense to utilities, marketing, accounting, stationery, income tax and wages. The other expenditure, called direct expenses, includes the cost of purchasing or manufacturing goods and the rest are considered indirect expenses.

It must include all the refunds as well. This figure allows the bookkeeper to suggest ways of reducing expenses wherever possible whether you are located in Chatswood, Randwick, Parramatta, or any other suburb. However, inflation in the market is inevitable and it will eventually lead to an increase in the expenditure.

For example, if the wholesale prices of raw materials increase, you cannot do much about it as a replacement with cheaper material could mean compromising on the quality of the goods. Still, there are many other ways of cutting the costs which will be recommended to you by a seasonal bookkeeper.

Additionally, the total spending figures can be utilised to make expenditure forecasts to secure the cash reserves and be ready for any financial setbacks.

Bottom-line And Enticing Investors

If the profits are higher than the expenses, your business in Sydney is growing and moving ahead. On the contrary, if the profit and loss statement is showing alarming figures, then you need to revamp the systems and rethink your business strategies. Thus you can make decisions based on hard facts than arbitrarily choosing to put your money anywhere.

Your bookkeeper can review what has worked in the market and what has not and help you to utilise this information for penetrating further and grabbing a bigger share. Your bottom-line is also of great interest to people who can invest in your business such as venture capitalists, banks, and financial institutions.

Most money lenders will not touch an organisation until they have solid proof of its financial track record. The profit and loss statement is evidence of owning a thriving business which can help in luring the investors in Chatswood, Randwick, Parramatta or any other part of Sydney.

Prepare For Filing Taxes

Your bookkeeping company in Sydney will be delegated with the duty of regularly updating the records and generating accurate income statements using accounting software. The services of a professional bookkeeper cut down on the time spent on generating these reports and ensure error-free and clean records.

The statement will arm you with all the data that will prove beneficial in preparing for the filing of income tax. Your bookkeeper will calculate the income tax that your business needs to pay on the basis of this statement. With the help of this information, the bookkeepers can advise on minimising taxes.

The statement calculates the pre-tax income and then deducts tax payments to get the net income after paying taxes. Thus a business in Sydney can comfortably predict its tax liabilities using this document.

Endnote

Besides creating profit and loss statements, the bookkeepers also provide an organisation with balance sheets and cash flow statements. All these financial documents are essential in determining various aspects of the business and understanding the financial health of the organisation.

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