Financial sustainability: Improve loan chances with a bulletproof P&L Email
Wednesday, April 22, 2015 10:31 AM


Financial stabilityMore than 40 percent of U.S. small businesses consider themselves financially illiterate, according to findings of a 2014 Intuit study and the SBA. Yet, 81 percent of them handle their business’s finances.

With April being National Financial Capability Month, now is a great time to brush up on financial literacy skills and the P&L statement (profit and loss statement - also known as the income statement) should be at the top of the list.

It is inevitable that you will at some point have to deal with securing the capital to fund and/or expand your business venture. Your profit and loss (P&L) statement is not only useful for analytical purposes, but it can also tell any possible investors whether you have a strong, viable operation. Small businesses are inherently a high-risk investment for lenders, so the more you can do to prove the integrity of your business and your data, the greater your chances of securing a loan.

Alongside impeccable credit, a solid business plan, a strong personal resume and a strategic marketing plan, a P&L statement is one of the top five small business loan requirements. Here are five things the SBA recommends that you can do to bulletproof your P&L statement and be on your way to securing the financing you need:

1. Understand what your P&L statement can do for your business

Your P&L statement is a summary of the profit and losses that your business has incurred during a particular time period. Basically, it’s revenue in, less expenses incurred (cost of goods sold, OPEX, and depreciation).

In addition to showing how profitable your business is, your P&L statement also sheds insight on what money is left in the business to pay your salary, clear debts, fund growth or hire an employee. It won’t, however, show if you have enough cash to pay your bills. (Refer to your cash flow statement for those details.) In a nutshell, it’s your financial health report card.

2. Take advantage of available tools

Getting started with a P&L statement isn’t the easiest thing in the world. If you need help, download SCORE’s profit and loss statement template (.xls). This includes all the necessary calculations to help you forecast net profit. To streamline the process completely (and ensure reliable data), consider cloud accounting tools. Because they automatically feed in data from other reports, cloud software eliminates the hassle of data entry, synchronization and maintenance.

3. Set profitability goals

How much profit do you want to realize from one month or quarter to the next? Use your P&L statement to track performance against those goals and use the data to glean insights. For example, if revenues were down one month, is there something you can do from a marketing perspective to generate more sales? If expenses are running high, make sure you understand why and plan accordingly.

4. Set projections

Your lender will want to see your projections for future profits and losses, plus a business plan that explains how you intend to make your numbers. Plan on projecting out a minimum of one year into the future. Three years, however, is ideal because it shows the impact that external financing will have on revenues and profits. For year one, have a clear sense of your monthly projections; for the remaining years, it’s usually okay to focus on quarterly targets.

5. Review it regularly

At a minimum, review your P&L statement on a monthly basis. It is a good idea to get into the habit of checking everything on a weekly basis, so you can stay on track and make necessary adjustments to your business plans. Consider hiring an accountant to keep an eye on your key financial statements; the benefits will almost outweigh any fees. Things to look out for include:

Increasing sales, but declining profit. This is a sign that something is wrong. Are your costs too high? What about your margins?
Stationary sales. Look for opportunities for growth in new markets, product lines or lead generation campaigns.
Increases in overhead (utilities, rent, insurance, etc.). Look for ways to keep costs low by shopping around.
Increases in the cost of goods sold (COGS). Find out why.

Read more in this issue of Colorado Green NOW:
Is your office wasting money?
Today is National Day of Service for Front Range volunteers
Planning a more sustainable urban forest
Earth Day reminder: Green Strategies for Colorado Landscapes

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