All businesses aim to make profits. This often involves finding ways of cutting costs & increasing revenue. Whether you’re providing a service or selling a product, the goal is to increase sales and, in turn, profits constantly. Once you do earn profits, it’s also important to think of how the profits will be used. Will they be reinvested? Will they be shared with the owners? Will they be saved for the future? Have the profits been consistent enough to fetch you a lucrative business loan? All these efforts and decisions are part of profit and loss management.
What is Profit and Loss Management?
Profit and Loss Management refers to the exercise of recording and then analyzing your company’s performance in financial terms. Such records later help you draw crucial conclusions about the company’s performance, department-wise performance, overhead costs, etc. Looking at these parameters is how the managerial staff makes decisions about future resource allocation, applying for a business loan, etc.
Very simply, profit and loss management is making use of your financial and accounting data to make informed decisions about the financial machinery of your business.
Why manage profit and loss?
Every business chalks up a profit and loss statement. This important record captures the details regarding the business, including costs, gains, sales, revenue, and ultimately, performance. This set of data becomes the deciding ground for future financial moves.
Robust profit and loss management would mean that you have assessed these parameters carefully. Robust profit and loss management would mean that you have assessed these parameters carefully. For example, if you envisage that the business might need some funds to help with cash-flows shortly, a working capital business loan can assist with these needs. Using the business loan calculator, you can find out how much it would cost you to borrow funds.
If you carefully study your profit and loss, you can identify what part of your business is draining money. Are your costs too high? Is the product priced too low, impacting revenues? Profit and loss management can help you preempt any fiscal issues, avoid losses, and even brighten your prospects if you plan to borrow a business loan.
P&L Statement & other tools for Profit and Loss Management
To reap the above mentioned benefits, the business must keep detailed and accurate records of the profits and losses by category, followed by the final figure of net profit or a net loss. Also referred to as the income statement, it is accompanied by a balance sheet that lists out all your business assets and liabilities and a cash-flow statement that tracks your cash transactions. Collectively, these documents help you assess your financial stability, creditworthiness, and turnover.
An essential use of these statements is in your application for a business loan. Depending on what the documents tell about the robustness and projections of your business, you can avail of a lucrative loan at Finserv MARKETS for as high as Rs. 75 lakhs. The business loan calculator can tell you how much you will be paying in EMIs. Again, you can use this information to steer your monthly budgets.
