For most home business owners and many small business operators, their idea of a profit and loss statement is often oversimplified (If they even have one at all). If they had more income than expenses, they made a profit. If not, they had a loss and will usually try to find more business or increase prices to turn the trend around.

By better understanding your business’s profit and loss statement, you will be able to determine not only how much money is earned and spent, but also track your expenses to gain better control of the finances.

The first thing to remember is that there is a difference between a budget and a profit and loss statement. Income is projected and expenses are budgeted, based on the income projection. If the income does not meet the forecast, certain expenses will need to be eliminated in order to make the profit and loss statement stay on the plus side at the end of the month. Read the rest of this entry »