As a business owner, I find myself constantly looking at my “numbers.”This can mean a
lot of things. As a creature of habit, I routinely look at my bank accounts (personal and
business) as the first task of the day. Once again, trying to keep a close rein on my expenses
and knowing what my cash position is at all times is extremely important.
In my opinion, knowing your cash position is the beginning of the picture to knowing your
business health. There are other things like your forecasted sales, your daily sales, your ac-
counts receivable and payable, but there's also the holy grail of business reports, which I
consider to be the profit-and-loss statement.
The profit-and-loss statement (aka P&L) is the result of the immaculate accounting proced-
ures that you have in place. Most accounting programs include an automatic P&L feature
that can slice and dice the numbers for you in a matter of minutes. In a nutshell, your P&L
will give you a quick snapshot of the health of your business for the last day, week, or
month. Truth be told, to truly evaluate a P&L, it should be looked at over a year, as pay-
ments and receivables take time to make the account statements. Looking at your P&L over
a one-week period is not a good idea. It's better used as more of a long-term gauge when
you are trying to assess your moneymaking abilities.
Have you ever heard the idiom “That's the bottom line” or “What's the bottom line”?
This is originally a business term and is referring to the last line on any business P&L state-
ment. “The bottom line” is the number that is calculated from all of your sales versus all of
your expenses and is the calculation in positive or negative numbers.
“The bottom line” is the true answer to whether or not your business is making money.
When the last line of your P&L statement is a positive number, that's the amount of money
your business has made for the duration of the report. If the last line of your P&L statement
is a negative number, then that's the amount of money your business has lost.
In the beginning, it's difficult to maintain a positive bottom line. Expenses are typically
high while sales are typically low. There are exceptions to this rule but be prepared for a
negative P&L to start. Many business analysts accept that it may take years for your small
business to make money; while this may be true, I do not consider this a rule. As a small
business owner I am in the game to make money. I watch my P&L, which will describe
each expense in detail at the push of a button. Just when you forgot that you spent $200 last
month on business lunches, that will pop back up on your P&L, which may trigger a new
look at expensing meals until the profits rise. In fact, had you not spent the $200 on those
lunches, your bottom line would be $200 greater . . . unless that $200 in expense landed
you a large project that you wouldn't have received otherwise.
The point is that with your P&L, you can watch your business, watch your expenses, and
keep track of the health of the business month to month. I find great satisfaction in viewing