In the next issue of our series covering the financial statements, we are taking a look at the Income Statement, also referred to as the Profit and Loss.
When it comes to your bookkeeping and accounting, this is a very important statement to look at regularly. Keep in mind, in order to get the full picture of your business’s finances, you want to be looking at a couple of other reports as well. Refer to our blog post covering this to see which financial statements you should be reviewing regularly.
What does the Income Statement include, and what does it tell you? In a nutshell, it lists out all of the income your business received, as well as your expenses. The final result is your business’s net income, or profit.
Do you know how much money your business made last week? Last month? Last year? Running this crucial report will answer that question for you, not only showing what your sales were, but the final result after expenses.
Does your bookkeeping track the different products or services you offer? Depending on how detailed your bookkeeping data entry is, the Income Statement will give you insight as to how much each product or service is making you. As you can imagine, this would be great information in helping you decide what services your business should continue offering or expand on.
The income statement can even be run by customer. If expenses are categorized to the customer in your accounting software, you’ll be able to see exactly how much money you took in and spent per customer, giving you even more detail. (Do you use Quickbooks Online? Read this article from Quickbooks to find out how to run this report.)
Your accounting software may also be able to break down your income and expenses as percentages of the totals. Why would this be important? Seeing what percentage of your income is coming from where will give you great insight on what services are producing the most sales for you. And on the expense side, if you see that you’re spending a high percentage of your income on a particular category, you may need to make an adjustment.
Doing projections on the income statement, along with future cash flow, can help to plan out different scenarios with your business, if you’re planning on adding expenses or different types of services in the future. Sometimes, seeing the graphs on paper (or your computer screen) can help to take the idea out of your head and into action!
If you have an accountant or bookkeeper, make sure to meet with them on this report monthly, along with your other financial statements. And if you don’t have a bookkeeper, run this report and look it over yourself! Seeing the exact numbers can sometimes be very surprising and always helpful in running your business.
If you are otherwise looking for a bookkeeper, feel free to contact us for a free consultation!
Do you have any questions, comments or feedback? Email us at contact@lucrativebookkeeping.com.
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