Profit and loss statement (P&L)

The profit and loss statement plays a crucial role in financial management. Despite this, many small businesses choose not to create a standard profit and loss statement. This decision might seem like a great way to reduce financial complexity, but it can rob managers of valuable insights.

What Is a Company Profit and Loss Statement?

Accounting professionals use this document to track a company’s financial performance over a specific period. As the name implies, it shows whether the company has made a profit or loss and how much money it generated from sales and expenses.

The profit and loss account format can vary depending on the countries you do business in and the regulations in that area. Typically, it includes the following items:

  • Revenue
  • Cost of goods sold
  • Gross profit
  • Selling expenses
  • Administrative expenses
  • Operating income or loss
  • Net income or loss

What Are the Two Profit and Loss Account Formats?

The two formats come down to the accounting methods used by the company. You already use one of these for the rest of your accounting, so the profit & loss account format generally follows the same accounting method.

Cash Method

In the cash method, you only record transactions when money changes hands. This strategy is the simpler accounting method, and most small businesses prefer this approach. It is also easier to reconcile cash accounts with bank statements and other financial records.

Accrual Method

The accrual method records revenue when earned, regardless of when the money changes hands. For example, if you sell a product on credit, you would still record the sale in that month, even though you won’t receive payment until later. This profit and loss account format provides a more accurate picture of your business’s financial health.

Profit and Loss Statements: Tips for Analysis

Once you have your profit and loss account set up, it’s time to analyze the data. Here are a few tips:

  • Look at your gross margin. This is a good indicator of your pricing strategy and overall profitability.
  • Compare your operating expenses to last year’s numbers. Do you see any notable trends?
  • Track your net income or loss over time. Doing so will give you a good idea of your business’s financial health and show its progression.
  • Keep an eye on your cash flow. This will help you predict when you need to reinvest in your business or take out a loan.

What Are the Benefits of Having a Standard Profit and Loss Statement?

Small businesses remain profitable and agile by avoiding much of the bureaucracy forced upon larger companies. So, why voluntarily create profit and loss statements if no mandatory requirements for one exist?

First, adequate profit and loss control forces managers to evaluate all aspects of operations to determine whether they made or lost money. This can be difficult for first-time entrepreneurs who are passionate about their product but have never before needed to consider the bottom line.

Second, it provides valuable information should you need it for tax purposes or to secure a loan. Lenders will almost always request some form of P&L statement as part of the application process.

Lastly, by regularly creating and reviewing profit and loss statements, you can catch financial problems early on and adjust your business model accordingly. This level of transparency and responsibility is crucial to the success of businesses of any size.

The Main Takeaway

Profit and Loss statements can be daunting for first-time entrepreneurs, but they are a necessary evil. By following these tips, you can use your P&L statement to understand your business’s financial health better and make more informed decisions.

Those that are familiar with the workforce management space need no introduction to and its powerful work OS tool. recently moved to an automated accounts receivable (A/R) collection system, powered by Gaviti, to replace its outdated annual reporting methodology.

From’s accounts receivables department:

With our business and sales growing exponentially, Gaviti has been a key tool in ensuring our DSO has not only stopped increasing but also shown improvements over a relatively short period of time. The ease of use combined with a highly responsive and helpful team… We have been able to quickly implement a comprehensive and versatile collections process.

When you stop to consider the broader, organizational benefits of automated A/R solutions, it’s easy to understand why was so successful. The right A/R collection software can improve cash flow as well as the performance of key metrics – such as days sales outstanding (DSO) – within your organization.

Improve DSO Collection Processes

At its core, DSO collection is a cash flow problem. According to a U.S. Bank study, 82% of businesses fail due to poor cash flow management.

Part of this issue is attributable to the time-consuming processes inherent in manual collections. DSO collections and cash flow already vary from month to month. When you add the time spent managing spreadsheets across late payments, grace periods, and lines of credit, you have an untenable system where staff spends more time corralling reports than processing payments. And while you may not enjoy managing the nitty-gritty details of your business’s finances, your financial processes are ripe for optimization. Consider just a few ways that accounts receivable collection software can streamline your enterprise DSO:

When you work to improve your accounts receivable collection, you’re working toward a healthy financial process where DSO stays low. But that’s not the only benefit of an A/R collection solution.

Stay Informed

5 Benefits of Automated Accounts Receivable Collection

In any discussion about the benefits of accounts receivable automation, it’s important to cover the broader benefits it provides:

  1. Better staff efficiency by reducing the manual hours required to perform collections tasks – all those hours you spend chasing invoices, calling clients, or writing follow-up emails add up.

  2. Ensure your data’s accuracy – real-time accurate data will prevent your company from making errors.


The benefits of the accounts receivable collection software are clear, and once you’ve deployed
you’ll have a hard time going back.

A/R Collections Best Practices

Although automated accounts receivable software brings a new dimension to your financial processes, the fundamentals of accounts receivable best practices remain the same. It’s a straightforward process that nevertheless tends to get bogged down by inefficiency. This is where automation software pays off.

Consider how you can leverage financial technology like this throughout your organization to improve key financial metrics. Technology is one option. Outsourcing accounts receivable collections to a service provider that can handle all the details for you is another. You have plenty of options, and now it’s just a matter of selecting which improvements will yield the best results for your enterprise.

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