Your Profit and Loss statement contains information about income, expenses and profit margins. It highlights the things you are doing right, and also areas of concern.   Here are five questions to ask at your next finance meeting:

• Have I made a profit or a loss?

The obvious first question really, but it’s not the end of the subject. You can make a big profit in one period and be out of business the next if cash flow isn’t carefully controlled, but that’s another topic!

• How do the figures compare with my last profit and loss statement?

In isolation, these figures mean nothing unless you are a completely new start-up. Comparison with previous Profit and Loss statements is necessary to see the progress you’ve made, or stop the slide if results dictate.

• Is my Cost of Sales figure increasing in proportion to sales?

If Cost of Sales has increased significantly compared with turnover, it could be due to the rising price of raw materials which indicates a need to raise your own prices.

• Is my gross profit margin high enough?

The gross profit margin indicates whether you’re making enough to cover expenses. Compare it with the industry norm – if it’s low, you might be under-pricing?

• What do I need to watch out for in my P&L statement?

Make sure costs such as heating and lighting haven’t increased too much. The Cost of Sales figure also needs checking to see how much you’re paying for raw materials, and such things as packaging. Colour Accounting™ financial literacy training courses are an easy and effective way to get to grips with business finances. Far from boring, they’re interactive and fun, increasing understanding so you can run your business more efficiently. Colour Accounting™ is our financial literacy course. Discover more about how to add great finance skills to your toolkit.]]>