Simple Profit and Loss Statement for the Self-Employed
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- So, What Really is a Profit & Loss Statement?
- Why Do I Need a Profit & Loss Statement?
- Is this the Only Financial Document I Need?
- Using this Excel Template vs Alternative Accounting Solutions
- Reading a Profit and Loss Statement
- Your Business’ Revenue
- Costs of Goods Sold and Expenses
- Gross Profit
- Net Income/Profit
- How to Personalize Your Profit and Loss Statement
- Adding & Removing Your Expenses
- Your Completed Profit and Loss Statement
If you’re self-employed, preparing a Profit and Loss statement may feel like an overwhelming task. No matter how expert you are in your trade, odds are you never studied finance. You got into what you do because you love it, or are good at it – and not because you love crunching numbers every month.
Self-employment can be difficult enough as it is, so for your convenience (and relief from headaches) we’ve created a simple and straightforward template that will help you prepare a professional profit and loss statement quickly.
Accounting has been widely practiced since ancient times. Some of the oldest writing ever recovered – from ancient Sumer, one of the oldest civilizations known – related to finance and trade. And the ancient Chinese and Romans are well known for their record keeping, including financial statements.
Luckily for us, we’re no longer chiselling figures into clay tablets or scrawling numbers onto papyrus. Thousands of years of advances have, in part, also simplified our record keeping.
If you’re self-employed and want a way to keep track of your finances, this template is for you. Alternatively, if you need a profit and loss statement template for a company, you can find one on this page.
Remember, your profit and loss statement is different from a balance sheet, which is a summary of a business’s assets, liabilities, and capital. If you need a balance sheet template too, we’ve got some great templates for you here.
So, What Really is a Profit & Loss Statement?
A Profit and Loss statement (a.k.a. P&L) is a financial document that summarizes your business revenues and expenses during a specific period of time, usually a month, quarter, or year.
The details you add to your P&L provide information about your business’ capacity to generate profit by increasing revenues, reducing expenses, or both.
You may also see the P&L statement go by slightly different names including a statement of profit and loss, statement of operations, income statement, statement of financial results and income and expense statement.
Why Do I Need a Profit & Loss Statement?
If you’re a self-employed worker or business owner, a profit and loss statement is an absolute necessity to:
- Reveal if your business is profitable or losing money,
- Provide the information you need to make sound business decisions, and
- Report financial information to interested parties, including your accountant, tax attorney, investors, and banks.
A profit and loss statement (also known as an ‘income statement’) can be used to analyze your business’ financial performance over an entire year.
Using this document, you can learn:
- Your best and worst revenue sources,
- Your most and least profitable months,
- Your ‘Bottom Line’ earnings and overall profit.
Is this the Only Financial Document I Need?
The profit and loss statement is one of the ‘big three’ financial statements used by accountants and other interested parties.
Financial statements are specially prepared documents of a business’s financial activities. They are recorded either over a time period (e.g. a year) or for a specific point in time (e.g. end of quarter).
The ‘big three’ financial statements are:
- Cash flow statement,
- Balance sheet, and
- Profit and loss statement.
For some extra clarity, a cash flow statement, unlike income statements, cannot be used to prepare your income tax return. That’s because cash flow statements don’t demonstrate 'net income' or profitability, as the Profit & Loss statement does.
In contrast to your P&L Statement, Cash flow statements:
- Measure your business' cash flows (the money flowing in and out of your business),
- Show your business' various revenue sources, and,
- Demonstrate how your business uses its cash over a period of time.
Using this Excel Template vs Alternative Accounting Solutions
Sure, there are plenty of other accounting and bookkeeping software alternatives available. Some offer mobile apps, automated bank reconciliation statements, automated payments and will even track your inventory for you.
But they come at a price. Accounting software such as Intuit Quickbooks can cost as much as $1,800 per year. And that’s just the overt cost. This kind of accounting software also comes with a covert cost – complexity.
Many accounting alternatives are difficult to master and have a steep learning curve. Not only will you be paying in money, but also in your time.
Fortunately, the profit and loss statement template we’ve created, and made available for you here for free, is easy to use and provides everything you need to get started.
Better yet, unlike some accounting software, you’ll have 100% control over the customization of your income statement, perfecting it for your individual needs.
Reading a Profit and Loss Statement
Profit and loss statements all follow the same basic structure. They show:
- Revenue (R),
- Cost of goods sold (C),
- Gross Profit (G),
- Operating expenses (and taxes) (E), and
- Net Profit (P).
Itemizing these lines allows you to quickly track your profits, with two equations so simple by 7-year-old could do them:
- R - C = G, and
- G - E = P.
In English, you find your Gross Profit by subtracting your Costs of Goods Sold from your total Revenue. And you find your Net Profit – your bottom line – by subtracting your Operating Expenses from your Gross Profit.
We cover this in more detail below.
Your Business’ Revenue
Revenue is the total credit and cash sales you made over a time period, such as a month, quarter or year. Total revenue can be calculated with the formula:
Total Revenue = Sale Price multiplied by the number of units sold.
Costs of Goods Sold and Expenses
Remember, it’s important to distinguish the difference between your costs and expenses. Costs (or ‘costs of goods sold’ as they’re called it in the template) are the products you’ve bought with the intention of reselling.
Meanwhile, expenses are the general ‘running’ or ‘operating’ costs of your business. Your expenses might include rent, utilities, office supplies, updated computers or software, and postage. Depreciation is also treated as an operating expense.
Your gross profit is found by subtracting CoGS (Cost of Goods Sold) from total revenue. This template has the ‘Gross Profit Margin’ built in.
The gross profit margin is displayed as a percentage underneath the figure for gross profit / (loss). Your gross profit margin is calculated as gross profit divided by revenue.
What’s a gross profit margin percentage? It’s simply a profitability ratio. It’s used to measure a business’ efficiency. Different industries have different expectations as far as efficiency is concerned, and we advise you to research this for your specific business, but aiming to meet approximately 50% is a good goal.
This template conveniently presents your gross profit margin for both the month and the year, as shown below.
Your ‘net profit,’ also known as ‘bottom line earnings,’ is found through the following formula:
Net Profit = Gross Profit minus Operating Expenses minus Tax.
You can see it calculated in this example:
The net profit before taxes or ‘taxable income,’ in this example, is, $607.
Meanwhile, your net profit after taxes could be considered your ‘take home’ income. This is sometimes referred to as ‘net income.’
If your Total Operating Expenses were more than your Total Gross Revenue, you would have made a net loss.
At the very bottom is the net profit/(loss) percent. This tells you the percentage of the total revenue you get to keep after all costs and taxes have been paid.
How to Personalize Your Profit and Loss Statement
Your Business Logo and Name
Your business logo or name can be edited in cell A1 and the top-left corner of the statement. Simply select cell A1 and enter your business or trading name.
Entering Your Revenue
Depending on the type of business you run, your revenue streams could include selling products, consultation services, or online courses.
You can enter your products and services under the Revenue heading. If you have more than 3 products or services, simply insert as many rows as you need.
Your Business’ Financial Year
Naturally, your business’ financial year may not start on the first of January.
To update the template to match your financial year, select cell E2 to the right of the ‘Financial Year Beginning’ and enter the first day of your financial year in DD/MM/YY format.
Notice that the months in row 4 update automatically.
An Extra Tip
To help you enter data correctly, there are helpful prompts built into the template. Where you see a cell with a red triangle, simply hold your mouse-cursor over that cell to view the prompt.
Adding & Removing Your Expenses
This template comes with placeholder rows for all your expenses. All you need to do is fill in the numbers. You may want to refer to your bank statements to ensure you’ve captured all your business expenses.
If an expense listed in our template isn’t relevant to your business, simply delete the row.
Or, you may find it useful to change the wording of some expenses to suit your needs. For example, rather than ‘Office Supplies,’ you may prefer ‘Stationery,’ or ‘Gas Mileage.’ Simply select the Operating Expense title and enter your expense name.
Alternatively, if you have an expense not shown in the template, you can insert a row to add specific business expenses.
To add another row, simply right-click the row-heading below where you want to add your new row and from the short-cut menu click Insert.
Your Completed Profit and Loss Statement
Once you’ve entered your income and business expenses you’ll have a good overview of how profitable you are as a self-employed businessperson.
Your completed Profit and Loss Statement will show you your gross income. It will list all your business expenses for the year. And finally it will tell you if you are making a net profit or a net loss.
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