There is something about running an online business that makes many online entrepreneurs feel like they don’t need to utilize the same practices and tools a more traditional business would utilize. Financial reporting is one of those areas.
When it comes to reporting, online business owners tend to rely more heavily on website and sales analytics than traditional financial reporting. Now don”t get me wrong, these reports are very important tools for analyzing any online business, but the one financial report every online entrepreneur should be looking at every month is their profit and loss statement (also known as the P&L or income statement).
The P&L is one of the most useful tools that can be used for analyzing the health of a business. It offers a clear snapshot of how much money is coming in and how much money is leaving over a given amount of time, usually viewed in months or years. With some simple addition and subtraction, the final number at the end of a basic P&L is the net profit (be it positive or negative). The net profit, or the “bottom line,” is a quick and easy measure of your business’s profitability.
In order to generate a P&L for your business, you need to have good bookkeeping. Seeing how Evolved Finance is in fact a bookkeeping firm for online businesses, it would be easy to understand why we hard-sell the importance of utilizing the information found in a P&L, but there are truly some legitimate reasons why you should be talking to your bookkeeper about generating this report for your online business on a monthly basis.
It’s the Pulse of Your Business
There is no better way to see and understand the health of your online business than by using a P&L. Sure, your CRM might be able to tell you how many units you’ve sold or how many subscribers you have, but the only way to know exactly how much money you’re making every month, every quarter and every year, is through the use of your P&L statements.
It’s One of the Reasons You Pay a Bookkeeper to Reconcile Your Accounts
Sure, the primary reason most businesses hire a bookkeeper is to record their transactions for taxes purposes at the end of the year. However, having access to valuable financial data on a monthly basis and not utilizing it is a disservice to the business. If you’re paying a bookkeeper to reconcile your accounts, and they’re not already sending you a P&L after the end of each month, you need to request that they start doing so immediately.
It’s a Very Straightforward Report to Understand
Just hearing the term P&L sounds very “financey,” which scares away a lot of online entrepreneurs because they think It’s going to be too complicated to understand. The reality is a P&L statement is pretty straightforward to review, especially when It’s for your own business. With a little time and with some help from your bookkeeper, you can easily become P&L literate for your online business.
As mentioned earlier, talk to your current bookkeeper and have them start to email your P&L once a month. If they’re open to it, hop on a call with them to review it together so you can not only learn more about what the numbers mean, but also to help your bookkeeper make sure they’re categorizing your income and expenses properly. It’s an easy way to catch mistakes and gain insights into your finances at the same time.