Tips To Effectively Manage Profit And Loss
Every company’s goal is to be profitable. Whether you run a small or large business, you need to be able to manage your financial statements efficiently, particularly your profit and loss statements, to achieve positive earnings and ensure that business expenses are kept under control. An experienced in-house accounting team or outsourced accountancy services is crucial to effectively manage this part of the business.
What is Profit and Loss and why is it Important
When you talk about profit, you are referring to the money or income that your business has gained less the expenses you have paid. Loss, on the other hand, happens when the expenses incurred by the business exceeded the amount of sales that your company has made during a specific accounting period.
It is a must to manage your company’s profit and loss to ensure that your business has enough money to keep its operation. Moreover, effective profit and loss management makes it more possible for your business to achieve its profitability goals.
Understanding your Profit and Loss Statement
Accuracy is thus necessary when preparing a profit and loss report. This report is a financial statement that details all the expenses, revenues, profits, and losses accrued by the company over a specified period of time.
With an accurate profit and loss statement, you will be able to gauge your company’s ability to manage expenses, generate sales, and increase profits.
When reading a profit and loss statement, all you need to keep in mind is to see if your company is making money. Simply put, the bottom line of this statement is to show the sales your company has made minus the expenses incurred.
At the top of the statement, the revenue or income your business has made is listed first. This is followed by the costs or expenses incurred by the business and concluded by the net income or profit.
Whilst you will see a lot of subtotals on this statement, what you need to review ultimately is the number at the bottom: the net income or net profit. If your business is making money, you will see that your net income has exceeded your expenses. On the other hand, you will see a loss when the expenses show you spent more than you earned.
How to Effectively Manage your Profit and Loss
Minimizing your expenses whilst keeping your earnings stable is your ultimate goal when managing your company’s profit and loss. Here are a few useful tips:
1. Do an initial assessment
Make a review of your past profit and loss reports and compare them to your current one. This will allow you to come up with performance benchmarks when establishing the company’s average income and expense levels.
2. Use analytical tools
Your accounting team should have proper analytical financial tools to structure your profit and loss statement based on your business operations. Having analytical tools makes it more organised to review or analyse your profit and loss statement.
3. Take note of increase in expenses
Analysing expense growth can help you evaluate your company’s use of resources.
4. Review company sales
A detailed analysis of the company’s sales will allow you to understand if there has been an increase or decrease in sales of your product or service. This will allow you to gauge if you need to discontinue a certain product or service line that does not generate income or sell off assets to increase your capital.
Remember that accuracy is key in ensuring that your profit and loss statement is effectively handled. To ensure that accuracy in making financial reports is never compromised, engaging a dedicated accounting team like an outsourced accountancy services can help you get timely reports that reflect the highest level of accuracy.
How outsourced accounting in Singapore can help manage company profit and loss. Outsourced accounting teams are specialists you can hire to provide accounting and bookkeeping services that meet industry standards. You can engage them to prepare your financial reports, such as your profit and loss statements, and handle all the accounting-related activities of your business.
On top of preparing timely and regulatory-compliant reports, outsourcing to a reputable accounting firm can also help you get expert insights on how you can effectively manage your company’s earnings and expenses. They have dedicated accounting specialists who can let you in on some valuable advice to help you control your expenses and increase your revenue.
Given these benefits, it is important that you weigh the pros and cons when outsourcing to an accounting firm. It may or may not be an ideal setup for the kind of business your company is involved in.
Whether you engage an outside firm or not, what you should always keep in mind is that you should always be on top of all your financial statements. This way, you are always in the know when it comes to your company’s financial health.
