Last week we shared Amanda Gascoigne’s explanation of Profit & Loss Statements. Now she’s back with how to make the most out of them for your business. ~WizeOwl
Now you know what information should be a part of your Profit and Loss Statement, how do you use that information to your advantage?
The first insight you can gain from your Profit and Loss Statement begins by simply looking at the bottom line.
Did you make a profit or a loss?
Are you making enough?
If you’ve made a profit, is it as much as you had budgeted for? Does the amount of profit seem adequate for the amount of blood, sweat and tears you’ve put into the business?
How does it compare to other times in your life when you’ve worked for someone else, drawing a regular wage?
If you’re not making the money you would’ve hoped, you need to take corrective action pronto.
If you’re not looking at your numbers regularly, by the time your accountant or bookkeeper has delivered the news it may be too late.
So it’s important to regularly look at your numbers and take the first step in understanding them better.
Don’t just brush it off and flick the responsibility to your accountant or bookkeeper. This will not serve you well in the long run.
That’s the first thing you can get from a Profit and Loss Statement, but it’s by no means the only thing.
Other insights you can gain
Here are some other points of data you can draw out from your Profit and Loss Statement:
- Are your sales levels acceptable?
- Is your gross profit percentage in line with industry averages or the ATO benchmarks?
- Are your wages as a percentage of sales in line with industry averages or the ATO benchmarks?
- Are any other large expenses as a percentage of sales too high?
- Are you spending too much?
- Does something seem odd?
- Is it possible that fraud exists in your business?
- Are you carrying too much stock?
If you have a look in the report section of your software, you will see that there are many types of Profit and Loss Statement formats too.
Have a play with these different reports and see which ones would help you the most in your business.
You can print reports on the following parameters:
- Selected date range (eg. between two dates, last month, this month, last quarter, year to date etc.)
- Comparisons to budgeted figures that you have entered
- Comparisons to a previous period
- For a for specified “jobs” if these have been setup to monitor income and expenses for particular jobs, locations, business activities
Again, it might be helpful to have a chat with your accountant and tell them what information you would love to be able to extract from your MYOB software.
At the moment, you may be producing spreadsheets at the end of every month, and this can be time-consuming.
If you tell your accountant which reports you’d like, however, they can help you pull the relevant data straight from your MYOB software package.
Now, how do you use that data to help you save on tax?
How you use your Profit and Loss Statement to help you save at tax time
As Kerry Packer once said:
“Of course I am minimising my tax. And if anybody in this country doesn’t minimise their tax, they want their heads read, because as a government, I can tell you you’re not spending it that well that we should be donating extra!”
If you’re not proactive, there’s a fair chance you’ll be donating more than you need to the ATO this year – and the first step in correcting this course of action is looking at the picture your Profit and Loss Statement paints.
I’d strongly recommend getting your accountant involved in this process, as they can add so much value to you and your business.
This is how the tax planning process goes:
- Your accountant will calculate your year-to-date profit (they will also thoroughly check your file for accuracy and attend to reallocations and adjustments as necessary)
- Your accountant will then extrapolate that profit out until 30 June
- Your accountant will calculate the likely tax for your business and associated individuals if you did nothing.
- Your accountant will suggest a range of strategies to reduce the tax and together you will work out which of the strategies you would like to implement.
- The sort of things that may be employed include: be contributing additional money into superannuation; spending money on a large capital purchase; bringing forward expenses; deferring income; paying bonuses…the list goes on!
If your accountant doesn’t have the data to extrapolate on, they can only really offer you general advice and their real value goes out the window.
All that value can be derived using the Profit and Loss Statement as the starting point – so make sure you have one ready to roll as we bear down on the end of financial year