How to Build a P&L Statement

The Only Template You'll Ever Need

A profit and loss (P&L) statement, also known as an income statement, is a vital financial tool for businesses of all sizes. It provides a snapshot of a company's revenues, expenses, and net income over a specific period. Understanding how to create a comprehensive P&L statement is crucial for evaluating business performance, making informed decisions, and attracting potential investors. In this blog post, we will guide you through the key steps and provide a template to help you build a P&L statement efficiently.

I. Understanding the P&L Statement Before diving into the details, it's important to grasp the purpose and components of a P&L statement.

The key points to remember are:

• Definition and Purpose: The P&L statement summarizes a company's financial performance by showcasing its revenues, costs, and profitability during a specific period.

  
  

• Components: The statement typically consists of revenue, cost of goods sold (COGS), gross profit, operating expenses, operating income, non-operating income/expenses, and net income.

  
  

• Importance: Investors, stakeholders, and business owners rely on the P&L statement to assess profitability, monitor trends, and make informed financial decisions.

Using a daily Profit and Loss (P&L) template provides crucial insights into your e-commerce business's financial health. It helps monitor your Shopify and Amazon sales, offering visibility into performance trends to make strategic decisions. The inclusion of Shopify revenue data allows you to assess your online store's profitability and compare it to other sales channels. A P&L template also helps track fulfillment costs, crucial for understanding product profitability and controlling expenses. Moreover, it helps manage advertising spend effectively, measuring the return on investment to maximize marketing efforts. Thus, a daily P&L template is an indispensable tool for maintaining financial control, optimizing operations, and driving profitability.

II. Steps to Create a P&L Statement,Now let's break down the process of building a P&L statement into manageable steps:

1. Gather Financial Data: Collect accurate and up-to-date financial information, including sales records, expense receipts, payroll records, and any other relevant financial documents.

   
   

2. Calculate Revenue: Summarize all sources of revenue, such as sales, services rendered, or other income. Ensure that you include both operating and non-operating revenues.

   
   

3. Determine Cost of Goods Sold (COGS): Identify and calculate the direct costs associated with producing goods or delivering services. This typically includes materials, direct labor, and any other costs directly tied to production.

   
   

4. Calculate Gross Profit: Subtract the COGS from the revenue to obtain the gross profit. This figure represents the amount of money remaining after accounting for the direct costs of production.

   
   

5. Calculate Operating Expenses: List and calculate all expenses related to running the business, such as rent, utilities, salaries, marketing, and administrative costs. Include both fixed and variable expenses.

   
   

6. Calculate Operating Income: Subtract the total operating expenses from the gross profit to determine the operating income. This figure reflects the profitability of the core operations of the business.

   
   

7. Include Non-Operating Income/Expenses: Account for any non-operating income or expenses, such as interest income, interest expenses, or gains/losses from investments.

   
   

8. Calculate Net Income: Sum up the operating income and non-operating income/expenses. The resulting figure represents the net income or the profit/loss generated by the business during the specified period.

III. Template for Building a P&L Statement To facilitate the process, here's a simplified template for constructing a P&L statement:

1.- Revenue

Operating Revenue

Non-Operating Revenue

Total Revenue

2.- Cost of Goods Sold (COGS)

3.- Gross Profit

Revenue minus COGS

4.- Operating Expenses

Expense 1

Expense 2

...

Total Operating Expense

5.- Operating Income

Gross Profit minus Operating Expenses

6.- Non-Operating Income/Expenses

7.- Net Income

Operating Income plus Non-Operating Income/Expenses

The Formulas For Monthly P&L Statements:

1.- Sales Revenue:

This is the total income from goods sold or services provided by the company. For example, if a company sold 100 units at $10 each, the total sales revenue would be $1000.

2.- Cost of Goods Sold (COGS):

This includes all the direct costs associated with producing the goods sold by the company. This could include materials, labor, and factory overheads, for instance.

COGS = Beginning Inventory + Purchases During the Period - Ending Inventory

3.- Gross Profit:

This is calculated by subtracting the Cost of Goods Sold from the Sales Revenue.

Gross Profit = Sales Revenue - COGS