Profit and Loss Statement for Small Business

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Every small business owner wants to be successful. And it’s no secret that one key to success is having an intimate knowledge of the business’s finances – but not every small business owner has an MBA.

We’ve created our Profit and Loss Statement for Small Business template for all the bakers, the rental property owners, the handypersons – for everyone who is an expert in their field, but who needs a little help running their finances.

What is a P&L Statement and Why Do You Need One

A Profit and Loss (P&L) statement, as we’ll describe in more detail below, is a way to track your business’s profits and losses. Profits are (hopefully) self-explanatory. They’re what you got into business for! Losses can come in the form of payroll, damages, theft, supplies, utility bills…  for the purposes of a P&L, if something saps money out of your business, it’s almost certainly considered a loss.

Tracking your profits and losses is about more than counting your coins. It’s about tracking your business’s health. If, for example, you’re receiving too much damaged product, or if too much product is being damaged on one person’s shift, you’ll be able to track that and respond accordingly, either by switching shipping companies, or by coaching the careless employee.

In larger corporations, P&L’s are prepared by accountants or accounting software, and can be extremely detailed and complex. Smaller companies, of course, can go this route as well. There are CPA’s the world over who you can turn to to help track and plan your business’s finances. However, they’re often expensive, and dig more deeply into the numbers than most small businesses need.

Our Profit and Loss Statement for Small Business was created to help any small business owner track their most important sources of losses and profits. And it’s customizable, so that whatever business you’re in, you’ll be able to track whatever line items you need.

In this instructional article, we’ll cover some of the basics of financial tracking, as well as discuss some of the finer points of using our template.

Financial Statements

Traditional financial statements are one tool for gauging the effectiveness and profitability of a business. Business financial statements typically comprise of three elements: (1) a Balance Sheet, (2) a statement of Profit and Loss (sometimes referred to as an Income Statement, a Profit and Loss Report, or “P&L” for short), and (3) a Reconciliation of Net Worth.

The Balance Sheet details the assets and liabilities of the business, along with its net worth. This report categorizes and lists the various assets (e.g. cash, inventory, accounts receivable, equipment, etc.) owned and used by the enterprise, and what liabilities (or debts) the business has incurred. The difference between the assets and liabilities is the company’s net worth, which gives the net value of the business on the day the balance sheet was prepared. It is a good but static report.

A Profit and Loss Statement is a numerical representation of the effectiveness and financial performance of the business. It details all the operations and activities of the company and translates those into financial results. The more profit the business makes, the more effectively the business is being run. Losses indicate that there may be economic, operational, or other negative influences on the business preventing it from returning a profit on the business owner’s investment.

The Reconciliation of Net Worth brings the Balance Sheet and the P&L together. It does this by reflecting the effect of the business’s activities indicated by changes in the two other reports. The net worth is the numerical value of the business as of the date the report is prepared.

All three elements play critical roles in keeping the small business owner informed, but an argument can be made that the P&L is most pertinent to the owner’s successful operation on a day-to-day basis. It is in the P&L that all business activities are ultimately accounted for, and their effects on the business (and it’s profitability) can be seen.

Profit and Loss Statement for Small Business Example

As its name implies, our Profit and Loss Statement for Small Business template is built expressly for small business owners. It is customizable and therefore suitable for businesses of all kinds and sizes.

Below you see what the template looks like when viewed on a computer screen. The print in this example may be too small to read easily on your monitor. We’ve provided larger examples below to show the content more clearly.

Here’s the top portion of the form, blown-up so you can see it more easily:

We’ve copied this example from Excel so you can see the relationship between the Columns, Rows, and Data Cells. You’ll need Excel on your PC because you’ll need it to view and manipulate the template. We have also assumed that you are sufficiently familiar with Excel to know that when we refer to a cell, say “B10,” that we’re referring to the cell located in Column B, at Row 10 in the template.

Structure of the Profit and Loss Statement

The P&L contains three distinct sections: (1) Gross Profit/Loss, (2) Net Profit/Loss Before Depreciation, Interest and Taxes, and (3) Net Profit/Loss.

Section One

The first section is represented above. It details up to three sources of revenue (i.e., pre-tax income) such as revenue from sales of goods and services (i.e., sales revenue), and possibly fees collected for the delivery of the same. These revenues are entered into the template in cells B4-B6 as positive (“+”) numbers. Additional rows for revenue sources can be added as necessary.

Directly below the revenue cells are costs related to the revenues. Discounts (B8), Refunds/Returns (B9) and Credit Notes Issued (B10), if incurred, should be entered as negative (“-“) numbers so that when summed in the Total Gross Revenue cell (C11) the result will be correct.

The section then details up to five different elements of Cost of Goods Sold. These are costs incurred by the company to produce the products (e.g., sold inventory) or services (e.g., transportation of products sold) or other miscellaneous costs (e.g., import fees or tariffs) incurred during the daily operations of the business. These costs are entered as positive (“+”) numbers in cells B14-B18.

Once the Revenue, Discounts, and Costs of Goods Sold are entered, the template sums them to provide the company’s Gross Profit/(Loss) in cell C21. This is the amount of money the business made (or lost) as a result of its primary day-to-day activities. The Gross Profit/(Loss) % that results in cell C22 is the percentage return on the company’s sales during the reporting period. This result can also be referred to as the Gross Profit Margin.

Sections Two and Three

Now let’s look at the second half of the report that gives you the other two sections. This example simply continues to the next row from the previous one and completes the form.

In our image above, you can see the next section, Net Profit/(Loss) Before Depreciation, Interest & Taxes.

To get to that number, Operating Expenses must be entered in cells B25-B39. Operating expenses are the expenses the business incurs to run the non-production elements of the company. They are necessary but are not involved in the production or distribution of the company’s products and services.

The template provides several rows with names of expenses that are most common, and additional rows are available for customization. Additional rows can be added if desired.

Entries to the Expense cells are all in positive (“+”) numbers, and they are summed in cell C40, Total Operating Expenses.

These expenses are then subtracted from the Gross Profit/(Loss) number given above in cell C21 to sum to what’s normally referred to as the Operating Profit, or in the case of the template, Net Profit/(Loss) Before Depreciation, Interest & Taxes in cell C42. Cell C43 then shows the percentage of Gross Revenue (C11) that remains to the business after Operating Expenses are deducted. Again, this number may also be referred to as the Net Profit Margin Before Depreciation, Interest & Taxes.

We now come to the third section, Net Profit/(Loss).

There are two calculations remaining in the final section. First, Depreciation and Bank Charges & Interest costs must be entered in cells B45 and B46. Depreciation is a “non-cash” charge that reflects the diminishment in value the business’s assets suffer over time. Typically, this charge is assessed against “hard” assets such as equipment or real estate. But it can also apply to “soft” assets such as patents or copyrights. This figure is normally calculated by the business’s accountant and can be found in the financial statements.

Bank Charges are those periodic costs the business’s bank assesses to provide banking services. If the company borrows money to fund its operation, the lenders assess interest for that privilege. This number is also typically found in the financial statements. Entries for these expenses should be done in positive (“+”) numbers.

After these last two expenses are entered, the template calculates the Profit Before Tax (C47) and the Net Profit/(Loss) before tax percentage (C48) (or the Before Tax Net Profit Margin).

The final expense entry is Taxes in cell B50. This number should be available from the financial statements or can be estimated by the owner. In either case, once it’s entered, the template will calculate the final Net Profit After Tax (C51), which shows the numerical results of all the company’s activities. This is the amount that represents the increase (when profits are positive) or decrease (when losses occur) in the business’s net worth at the end of the business accounting period. Cell 52 shows the Net Profit/(Loss) as a percentage of the Total Gross Revenue (C11) above. This can also be described as the Net Profit Margin.

Example With Sections Filled In

Now, let’s look at an example with all the numbers filled in so you can see how they work together. To keep the examples easily readable we’ve broken the report into two halves.

Top Half

This is the top half of our filled-in example. We’ve entered the name of a fictitious business in cell A1 and assumed that the report is generated at the end of the company’s operating year at 12-31-2019. Note that when the end-of-period date is entered as “12-31-2019,” the template adjusts the entry to “December 31, 2019.”

Here, we assumed that the business received three types of revenue and we’ve modified the third type to reflect that “(e.g., fees collected)” in B6. We’ve also assumed certain deductions in the total revenue in cells B8-B10.

The result is that the business’s Total Gross Revenue for 2019 was $180,000 (C11). It is against this number that all profit percentages will be measured as we go through the report.

Next, we see that the cost to produce the inventory or services sold during the year was $50,000. This could have been for raw materials, transportation, or any number of other production activities. But for our example, we’ve simply assumed that the number was $50,000, which resulted in a Total Cost of Goods Sold of $50,000.

This number is then subtracted from the Total Gross Revenue to result in a Gross Profit/(Loss) of $130,000 and a Gross Profit percentage (Gross Profit Margin) of 72%.

Bottom Half

Now, let’s continue on to the second half of the report, where we can see the final result of our fictitious company’s operation in 2019.

First notice that the Operating Expenses have been entered in cells B25-B39. They are then totaled in cell C40 as $101,500. These were the non-production but nevertheless necessary expenses the business incurred during the year to “operate” the company. Thus the name, “Total Operating Expenses.”

These expenses, when deducted by the template from the Gross Profit of $130,000 (cell C21), show a Net Profit/(Loss) Before Depreciation, Interest & Taxes of $28,500 (C42), and a 16% return (C43) on Gross Revenue (i.e., Net Profit/(Loss) Margin Before Depreciation, Interest & Taxes).

Next, Depreciation (B45) and Bank Charges & Interest Costs (B46) are entered, which results in a Profit Before Tax of $17,000 (C47) and a return percentage (i.e., Net Profit/(Loss) Margin Before Taxes) of 9% (C48).

And finally, Taxes of $5,000 are recognized (B50) and automatically subtracted from Profit Before Tax for a Net Profit of $12,000 (C51) and a final calculated return percentage (i.e., Net Profit Margin) of 7% (C52).

When entering the expenses on this portion of the template, remember that all entries are positive (“+”).

Importance of Profit and Loss Statement

By reviewing this Small Business Profit and Loss Template, you now understand what a Profit and Loss Statement is, how to construct one, and how the elements of the report work together to reflect the business’s net result. And, you can appreciate the importance of this crucial piece of information to the business owner.

In the case of our fictitious company, the business’s operation resulted in Gross Revenues of $180,000, Operating Expenses of $101,500, and a Net Profit of $12,000. The owner can now use this information to make decisions about how to run the business more effectively. He/she can decide whether to increase prices, how better to control operational and administrative expenses, whether to search for new or additional suppliers, etc.

As detailed above, this information is also available to the business owner in the more complex and detailed financial statements. The advantage of using financial reporting, however, is that information critical to the business owner’s understanding of his/her business is condensed into a single easily-understood report, without complexity or overuse of detail. Many business owners prefer such a clear and concise presentation to understand their business better.

We wish you well with your business and hope this discussion of the Profit and Loss Statement for Small Business has been informative.