Episode 43: The Profit and Loss Deep Dive Every Business Owner Needs

  📍 Welcome to CreativeMind Smart Money, the podcast where creativity and business smarts collide. I’m your host, Samantha Eck, bookkeeper, business coach, and your go to guide for building the creative business of your dreams. Whether it’s mastering your money, streamlining your systems, or growing your business, I’m here to share insights that empower you to thrive.

Plus, I’ll be bringing in industry experts to dive into all aspects of entrepreneurship, so you can turn your passion into profit without losing your creative spark. Let’s get started

You are listening to the Creative Minds Smart Money Podcast, and today is the first in a series of financial statement deep dives. Today we’re looking at your profit and loss, and we’re taking a deep dive into your profit and loss to help you as a business owner have a baseline understanding of what it is that you’re looking at.

I’ve said this before, but financial education is. So limited, and as business owners we’re kind of just tossed into things and expected to know things, which is why I wanna be a resource and helpful for you. However, if you have found that you are missing something, a specifically a topic or someone you wanna see on this podcast, please check the description box for a topic, suggestion form that you can fill out and we can hopefully get your topic on the podcast. You are also free to leave any sort of questions you have in there, and I might eventually do a q and a episode filled with questions from listeners. But let’s get right into your profit and loss statement.

Your profit and loss statement is probably one of the most important statements to look at, and it’s literally like the tea on your business. I actually look at three different versions of the profit and loss with my clients every month, and it’s because a lot of it gives you a lot of different information and if you don’t know what you’re looking for, you can be kind of confused.

So understanding your profit and loss. We’ll help you to make smarter decisions and avoid certain financial headaches. So what is a profit and loss statement? A profit and loss or p and l or income statement is one of the most important financial statements that you should be looking at every single month.

There are three different set, well, sometimes four, but there’s usually with us service providers, there’s usually three different sections. You have your revenue, your expenses, or potentially your cost of goods, and then your net income. So when you’re looking at all of these, they make up your profit and loss.

When we look at a profit and loss though, the question we wanna ask ourselves is, what was my net income? Now, of course, you don’t just wanna look at your net income, but you really do wanna understand what your net income was, because it either is a net loss or a net gain. So. Utilizing this to understand your numbers, you’re going to take a look at your profit loss by saying, okay, I am going to look at my profit loss and say, okay, I brought in $10,000 in revenue, so that’s great.

Now, you know, especially if you have looked at your chart of accounts and you’ve set up a really cool custom chart of accounts, and you have all of your different revenue streams listed out, whether that’s digital products or your services, and then you have your expenses. Now your expenses are going to be the next section.

That has all of your expenses and based on how you categorize them, you can have like your subscriptions, your insurance, things like that. It’s going to help you determine kind of what is there. And then the, of course, the final section is your net income, so that’s at what’s left after your revenue and your expenses are deducted.

If you have a. Net income, that’s fantastic. If you have a net loss, then of course that’s where you want to take a look at this and readjust. So of course this matters because when you look at this, it helps you to determine your pricing. And when we talked about intentional spending and everything like that a couple weeks ago, one of the things we talked about is understanding what your expenses were.

So if you’re starting to think about being intentional with that, the profit loss is one of those places you can start, where you can look at your spending and see your habits so that you can start to prep for that. If you are a sole prop or a single member, LLC as well, the p and l is most likely the place where all of your business activity happens and where people will be looking at, unless you’re buying like $30,000 trucks and cars and going out and spending all your money in different places, the IRS is usually only looking for your deductibles because you don’t have a lot of assets, and usually with a lot of smaller businesses, we don’t consider your purchases assets unless they’re over $2,500 because it’s more beneficial for you to deduct that.

Asset immediately, rather than do it over the lifetime of however long it is. Like if you’re spending $10,000 on a truck, of course that’s gonna be more beneficial for you to deduct that over time. And the IRS will actually require you to, but usually if it’s smaller, we don’t need to worry about that. So.

Of course, again, it matters because you wanna see what your net income was, and it’s gonna help you to determine if you need to make some adjustments, whether in spending or in pricing. But this is where you wanna check for red flags because you wanna look at where your expenses are your highest.

Usually we look at what the, the top three categories that are your highest is. You have low margins now. If you’re someone who sells products, when I’m talking about low margins, you’re gonna look at your cost of goods and then you’re gonna look at your gross profit. And your gross profit is gonna determine like what you have after the money, the, the funds that you’ve spent directly on your products have come out.

And it’s always good to take a look at that and say, okay, well, hmm, I only have 60% after I’ve spent what I need to make my products. So that’s a really good space too, as well. And then it’s also a great place to see if you’re like, okay, my cash flow is inconsistent. Why is it inconsistent? Because you can kind of look at when your income is coming in on your profit and loss and, and analyze that in that sense.

So it can really be used to your advantage because it can identify trends and help you to set those financial goals that I’m always talking about. Because when you look at that, it helps you to make those data-driven choices, which sets you up for that intentionality that I’m so keen on.

So when you take a look at this every month, it really does just. Bring to light all of those areas where you’re overspending, but it also can help you see if maybe your pricing too low. And that’s why this is one that is such an important report. And usually I always suggest that you go back and you compare your current month to your previous month.

And if you have enough data, you should also look at it year over year as well as year to date, because it’ll just really give you that insight. So how often should you renew it? Now you already know I’ve talked about doing monthly coffee dates so that you can stay ahead of any sort of data or stuff that’s coming your way.

This should be one of those things that you’re looking at during that monthly coffee date. And I know you’re probably like, oh my gosh, Samantha, why do you keep talking about these stupid monthly check-ins? But they’re so important, and I know that you’re like, oh, I don’t have time to check it in monthly, but make it fun.

Even if you have to do it on a weekend for. 30 minutes just to check in on things. Put on some music. Watch a TV show. Grab your favorite, drink your energy. Drink your chocolate covered pretzels, whatever it is, and sit down and look at your numbers. Even if you have a bookkeeper, it is so important. For you as a business owner, to be as informed as your bookkeeper is.

You need to know what’s going on in your business. You are the decision maker. You are the person making the decisions, and looking at these, in addition to looking at everything is so important. When I send my clients their financial breakdown, yes, I walk them through their profit and loss. I walk them through their balance sheet, but I fully expect them to also be looking at that and saying, oh, Samantha, like I noticed that this was higher on my profit and loss.

How do we get that down? And that is exactly what you should also be doing, regardless of if you have a bookkeeper or not. You should be analyzing 📍 that.

I want you to remember that a p and L isn’t just for tax time. It’s a tool that every business owner needs to use to grow sustainably. I want you to start today by taking your most recent p and l and analyze it.

Look at those, the income. Look at the expenses, and look at your net profit. Is it where you want it to be? And if you haven’t started setting those financial goals yet, then you definitely should be. I’ll be talking about that later this year when we get closer to the end of the year about setting more intentional goals.

’cause I know I did talk about that a little bit last year, but I really wanna go into a deep dive for that. If you found this episode helpful, please subscribe, leave a review, and share it with your fellow, fellow entrepreneurs. As always, I wish you the best week ever and we’ll see you next week. Farewell fellow travelers.