The Profit and Loss Deep Dive Every Business Owner Needs

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Welcome to CreativeMind Smart Money, the podcast where

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creativity and business smarts collide.

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I'm your host, Samantha Eck, bookkeeper, business coach, and

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your go to guide for building the creative business of your dreams.

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Whether it's mastering your money, streamlining your systems, or growing

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your business, I'm here to share insights that empower you to thrive.

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Plus, I'll be bringing in industry experts to dive into all aspects

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of entrepreneurship, so you can turn your passion into profit

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without losing your creative spark.

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Let's get started

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You are listening to the Creative Minds Smart Money Podcast, and

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today is the first in a series of financial statement deep dives.

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Today we're looking at your profit and loss, and we're taking a deep

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dive into your profit and loss to help you as a business owner

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have a baseline understanding of what it is that you're looking at.

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I've said this before, but financial education is.

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So limited, and as business owners we're kind of just tossed into things and

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expected to know things, which is why I wanna be a resource and helpful for you.

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However, if you have found that you are missing something, a specifically

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a topic or someone you wanna see on this podcast, please check the

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description box for a topic, suggestion form that you can fill out and we can

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hopefully get your topic on the podcast.

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You are also free to leave any sort of questions you have in there, and I

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might eventually do a q and a episode filled with questions from listeners.

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But let's get right into your profit and loss statement.

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Your profit and loss statement is probably one of the most important

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statements to look at, and it's literally like the tea on your business.

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I actually look at three different versions of the profit and loss

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with my clients every month, and it's because a lot of it gives you a

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lot of different information and if you don't know what you're looking

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for, you can be kind of confused.

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So understanding your profit and loss.

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We'll help you to make smarter decisions and avoid certain financial headaches.

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So what is a profit and loss statement?

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A profit and loss or p and l or income statement is one of the most important

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financial statements that you should be looking at every single month.

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There are three different set, well, sometimes four, but there's usually

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with us service providers, there's usually three different sections.

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You have your revenue, your expenses, or potentially your cost

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of goods, and then your net income.

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So when you're looking at all of these, they make up your profit and loss.

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When we look at a profit and loss though, the question we wanna ask

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ourselves is, what was my net income?

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Now, of course, you don't just wanna look at your net income, but

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you really do wanna understand what your net income was, because it

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either is a net loss or a net gain.

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So.

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Utilizing this to understand your numbers, you're going to take a look at your profit

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loss by saying, okay, I am going to look at my profit loss and say, okay, I brought

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in $10,000 in revenue, so that's great.

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Now, you know, especially if you have looked at your chart of accounts and

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you've set up a really cool custom chart of accounts, and you have all of your

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different revenue streams listed out, whether that's digital products or your

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services, and then you have your expenses.

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Now your expenses are going to be the next section.

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That has all of your expenses and based on how you categorize them,

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you can have like your subscriptions, your insurance, things like that.

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It's going to help you determine kind of what is there.

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And then the, of course, the final section is your net income, so that's

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at what's left after your revenue and your expenses are deducted.

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If you have a. Net income, that's fantastic.

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If you have a net loss, then of course that's where you want to

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take a look at this and readjust.

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So of course this matters because when you look at this, it helps

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you to determine your pricing.

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And when we talked about intentional spending and everything like

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that a couple weeks ago, one of the things we talked about is

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understanding what your expenses were.

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So if you're starting to think about being intentional with that, the

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profit loss is one of those places you can start, where you can look at

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your spending and see your habits so that you can start to prep for that.

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If you are a sole prop or a single member, LLC as well, the p and l is most likely

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the place where all of your business activity happens and where people will

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be looking at, unless you're buying like $30,000 trucks and cars and going out

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and spending all your money in different places, the IRS is usually only looking

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for your deductibles because you don't have a lot of assets, and usually with

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a lot of smaller businesses, we don't consider your purchases assets unless

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they're over $2,500 because it's more beneficial for you to deduct that.

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Asset immediately, rather than do it over the lifetime of however long it is.

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Like if you're spending $10,000 on a truck, of course that's

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gonna be more beneficial for you to deduct that over time.

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And the IRS will actually require you to, but usually if it's smaller,

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we don't need to worry about that.

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So.

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Of course, again, it matters because you wanna see what your net income was,

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and it's gonna help you to determine if you need to make some adjustments,

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whether in spending or in pricing.

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But this is where you wanna check for red flags because you wanna look at

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where your expenses are your highest.

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Usually we look at what the, the top three categories that are your highest is.

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You have low margins now.

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If you're someone who sells products, when I'm talking about low margins, you're

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gonna look at your cost of goods and then you're gonna look at your gross profit.

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And your gross profit is gonna determine like what you have after the money,

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the, the funds that you've spent directly on your products have come out.

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And it's always good to take a look at that and say, okay, well, hmm,

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I only have 60% after I've spent what I need to make my products.

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So that's a really good space too, as well.

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And then it's also a great place to see if you're like, okay,

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my cash flow is inconsistent.

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Why is it inconsistent?

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Because you can kind of look at when your income is coming in on your profit and

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loss and, and analyze that in that sense.

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So it can really be used to your advantage because it can identify trends

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and help you to set those financial goals that I'm always talking about.

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Because when you look at that, it helps you to make those data-driven

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choices, which sets you up for that intentionality that I'm so keen on.

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So when you take a look at this every month, it really does just.

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Bring to light all of those areas where you're overspending, but it also can help

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you see if maybe your pricing too low.

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And that's why this is one that is such an important report.

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And usually I always suggest that you go back and you compare your

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current month to your previous month.

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And if you have enough data, you should also look at it year over year as

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well as year to date, because it'll just really give you that insight.

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So how often should you renew it?

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Now you already know I've talked about doing monthly coffee dates so that

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you can stay ahead of any sort of data or stuff that's coming your way.

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This should be one of those things that you're looking at

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during that monthly coffee date.

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And I know you're probably like, oh my gosh, Samantha, why do you keep talking

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about these stupid monthly check-ins?

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But they're so important, and I know that you're like, oh, I don't have time

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to check it in monthly, but make it fun.

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Even if you have to do it on a weekend for.

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30 minutes just to check in on things.

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Put on some music.

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Watch a TV show.

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Grab your favorite, drink your energy.

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Drink your chocolate covered pretzels, whatever it is, and sit

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down and look at your numbers.

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Even if you have a bookkeeper, it is so important.

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For you as a business owner, to be as informed as your bookkeeper is.

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You need to know what's going on in your business.

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You are the decision maker.

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You are the person making the decisions, and looking at these, in addition to

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looking at everything is so important.

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When I send my clients their financial breakdown, yes, I walk

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them through their profit and loss.

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I walk them through their balance sheet, but I fully expect them to also

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be looking at that and saying, oh, Samantha, like I noticed that this

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was higher on my profit and loss.

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How do we get that down?

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And that is exactly what you should also be doing, regardless of if

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you have a bookkeeper or not.

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You should be analyzing that.

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I want you to remember that a p and L isn't just for tax time.

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It's a tool that every business owner needs to use to grow sustainably.

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I want you to start today by taking your most recent p and l and analyze it.

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Look at those, the income.

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Look at the expenses, and look at your net profit.

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Is it where you want it to be?

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And if you haven't started setting those financial goals yet,

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then you definitely should be.

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I'll be talking about that later this year when we get closer to the end of the

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year about setting more intentional goals.

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'cause I know I did talk about that a little bit last year, but I really

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wanna go into a deep dive for that.

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If you found this episode helpful, please subscribe, leave a review, and share it

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with your fellow, fellow entrepreneurs.

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As always, I wish you the best week ever and we'll see you next week.

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Farewell fellow travelers.