Joseph Stone Capital shares some tips on profit and loss in money management

Being able to effectively manage your incoming and outgoing money guarantees you a healthy business. To do this, you need correct financial documents. Make essential changes to your business through profit and loss in financial management. Joseph Stone Capital states that profit and loss (P&L) management is the procedure for determining how to reduce costs and increase revenue. You can start this process by looking at your company’s income statement. Because your income statement breaks down your business costs and earnings, it provides key insights into growing your revenue and increasing your business’s chances of success.

Every business needs to focus on profit and loss management to stay solvent. Profit is the money a business keeps after paying all of its expenses. A loss arises from expenses that exceed the amount of sales made by a business in a given accounting period. Businesses need to manage their income statements, also known as profit and loss accounts, to keep profits upbeat and expenses under control and in line with revenue.

  • Joseph Stone Capital says management should have an accountant or analyst prepare analytical tools like a common-size income statement. This income statement illustrates each expense as a percentage of sales, allowing management to separate costs that may contribute to lower profits. The company can perform this analysis for, possibly, three years of historical data. An analyst compares the three years with each other by reading in parallel. Expenses as a percentage of revenue are compared for each year to reveal trends that show expenses increasing or decreasing as a percentage of sales over time. Some costs, such as the cost of goods sold, would naturally increase with increasing sales because they represent the raw materials used to make the products for sale. Administrative costs, building rent and some utility bills should stay the same, regardless of the increase in sales.
  • Profit and loss management begins with an assessment of the company’s current financial condition. Management should assess the current income statement and compare it to historical data for the past two or three years of the business. An analyst or accountant can use this information to establish a set of performance criteria for the company’s average revenue and expense levels.

Strategic profit and loss management guided by a detailed income statement will help you maintain positive profits and reduce expenses. Frequently creating profit and loss statements, meeting with a CPA to review the results, and implementing necessary changes are the first steps to knowing where your business is financially and making essential changes to increase profits while reducing costs.

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