A profit and loss statement is an excellent financial tool that you may use to determine overall profitability during a specific time period. While you may use this tool for personal use, you may also need to prepare a profit and loss when you apply for a loan or for other purposes. These are the essential steps to take to prepare a profit and loss statement.

Gather Records for the Time Period

A profit and loss statement with the help of someone like RMR Wealth Builders, Inc. is an accounting of all income and expenses within a specified period of time, or it may be a projection of anticipated income and expenses. The most common interval statement is 12 months, and this annual period usually runs from January 1 through December 31.

However, there are other intervals and time periods. For example, it may be common for a bank to request a profit and loss statement for the last two calendar years as well as a year-to-date statement. Quarterly statements may also be helpful to review or required. When you are projecting expenses, you should research accurate numbers to base projections on.

Analyze All Sources of Income

Some profit and loss statements itemize the sources of income. Others simply lump the income together. Ensure that your projections of income are as accurate as possible. When dealing with a projection, itemizing the income sources may be more effective and beneficial.

Determine All Operating Expenses

You will also need to complete this step for your expenses. While income is may be listed separately by source or lumped together, it is common to create categories for the expenses. For example, you may lump all of the utility expenses or marketing expenses together in their own categories. This makes it easier for you to analyze the expenses.

Hire a Professional for Assistance

Some people regularly prepare profit and loss statements for their own purposes, or they are able to quickly generate an accurate profit and loss statement when needed. Others find it difficult to complete this type of task on their own. Hiring a professional to prepare these documents is beneficial, and some professionals may also assist you with analysis of the documents.

A profit and loss statement is an excellent financial tool to prepare and analyze before you open a new business, such as a café. It can help you to determine if your business may be profitable or how long it may take for the business to be profitable. The effectiveness of this tool is based on how accurate your projections or estimates are.