The profit & loss (P&L) report, now commonly known as Statement of Comprehensive Income, is one of the most important reports a business needs in order to operate successfully because it acts as the performance report for a given time period – usually a month, quarter or year.
Here are 10 reasons why you should not ignore your P&L:

1. Profit & Loss Report for Business Health Assessment

The P&L provides a comprehensive overview of revenue, costs, and expenses, allowing business owners to understand their profit or loss at a given time. One report identified that 30% of businesses fail because the owner is unaware of their financial standing.

2. Identifying Profitability Trends

The report helps with strategic planning by utilising trends. It allows businesses to determine if they are growing, stagnating, or declining. 29% of startups fail due to running out of cash, which could be prevented by monitoring profitability trends.

3. Cost Management

Managing costs is an important benefit of correctly using the P&L as it allows for variance analysis of actual expenses versus budgeted. This identifies where to reduce costs.

4. Revenue Analysis

A report by QuickBooks found that 30% of small businesses fail to grow due to a lack of understanding of their revenue streams. The P&L identifies the most profitable products or services and those that may need to be redesigned or removed from offering.

5. Tax Preparation

Necessary financial data is derived from the P&L statement and is an essential part of calculating accurate tax liabilities.

6. Investor and Lender Confidence

Investors and lenders use the P&L to decide on providing funds to a business. As previously mentioned, it reports the company's financial health and profitability. It has been reported that 34% of small businesses struggle to secure adequate funding.

7. Performance Analysis

A core reason for the P&L is that it allows for comparison of performance against industry standards, identifying areas of underperformance and potential growth. One study found that 39% of high-growth companies use financial statements for benchmarking purposes.

8. Cash Flow Management

The P&L statement aids in cash flow management by providing a clear picture of income and expenses. According to a study, 82% of businesses that fail do so because of cash flow problems.

9. Pricing Strategy

The P&L report helps in formulating an effective pricing strategy. It provides insights into costs and margins, which are crucial for setting competitive prices. McKinsey & Company found that a 1% price increase can lead to an 8.7% increase in operating profits.

10. Operational Efficiency

The P&L report helps identify inefficiencies in operations. By analysing expenses, businesses can find areas where they can improve efficiency and reduce costs. Deloitte reported that 88% of companies believe that cost structure is a critical factor in their competitive advantage.

The P&L, or Statement of Comprehensive Income, is one of the most important reports that a business can consistently produce and monitor in order to maintain growth. It is the story of the timeline.

If you need your P&L produced or feel that your current accountant is not producing your P&L accurately nor frequently enough for your business, we invite you to fill out the form below and one of our professional accountants will help you navigate the financial landscape with confidence.

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