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Understanding Your Home Business Profit And Loss Statement

Apr 10, 2008
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.

The business's profit and loss can be as simple or as complex as you choose to make it, but the more tracking of expenses that you do, the better handle you can have on your business. For example, you can simply include a line in your expense column pertaining to utilities and lump them all together. However, to get a better picture of where your money is going, you will want to break them down into subcategories such as electric, gas, water and telephone.

By keeping them separate you may see a need to bring telephone costs under control by eliminating unnecessary lines that seldom ring or find ways to save on your electric costs. If you deduct for business use of your home, you will have a pretty good idea of what your costs for utilities, rent, insurance and other expenses will be based on the percentage of your home's cost deducted for business use of the home.

One of the first things to budget, which has the greatest impact on your profit and loss will be income. Whether you sell a product or service or are involved in network marketing you will need to track all forms of income, as well as allow for deductions due to refunds, rebates and any discounts offered as customer incentives. Tracking this on the profit and loss is fairly easy. As the money comes into the business it is considered income. The source of the income can be itemized as well to help indicate how you may go about increasing your bottom line.

Expenses in the budget can be calculated as a fixed dollar amount or a percentage of income, which usually provides greater control over spending. Itemized expenses on the profit and loss can also make filing income taxes easier as you will have a monthly record of how much money came into the business as well as where every dollar went that left the building.
About the Author
Josh Bradley creator of HomeBizGalaxy.com - The ultimate Internet and home business resource website. Find articles, tips, tricks and ideas for making more money on the Internet at: http://www.HomeBizGalaxy.com
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