Profit and Loss Statement – Why Bother?
The entries on a Profit and Loss (P&L) statement provide insight and knowledge about the construction company’s cash flow. A P&L shows where money is coming from and how it is used.
So, every dollar that comes in (Income), less what it costs to provide the product or service (COGS or COS,) is the Gross Profit. Then, all the Expenses (Overhead Costs like rent and utilities) are deducted to leave the Net Profit.
The formula for the creation of a P&L is as follows:
Income (Revenue) minus the Cost of Goods Sold (COGS) or Costs of Services (COS) equals Gross Profit minus Expenses (Overhead Costs) equals Net Profit.
Who Should Bother?
What key staff members should be looking over the profit and loss statement?
Owners. For. Sure.
Yes, owners must pay attention. And others should pay attention, such as division managers or those who must make informed decisions about your business’s finances. Profit and Loss statements are often pulled by divisional class so that department heads can focus specifically on their department’s performance.
How Often Should P&Ls Be Perused?
How frequently should a profit and loss statement be issued? At least monthly, but it’s not a bad idea to look at it more often – daily if possible.
Making the P&L Statement Useful
Use your current P&L statement to compare it with past reports. Are there any drastic changes? Whether an improvement or a decline, can you identify how or why?
Meet with your accountant to help identify areas of improvement or decline. Discuss ways to continue improving or change what is not working. Adjusting payment terms, cutting expenses, or making more sales might be necessary.
Recognize that managing profit and loss influences your business strategies and decision-making.
Reflection Point: A Profit and Loss statement tells the story of a construction company’s ability to generate sales, manage expenses, and create profits.
Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:
Clients and customers
Employees and subcontractors
Vendors and service providers
Governmental entities
Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:
Remain informed
Avoid hassles
Reduce risks
Be future-ready
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