Small Business Help And Training

Profit And Loss Statement

This page covers profit and loss statements for internet businesses and contains a link to a profit and loss form.

This information and instructions in this page relate specifically to an online micro internet business. (For a definition of a micro-business go to Micro Business Definition.) It is laid out to allow a micro-business owner to track multiple streams of income as individual profit centers. It should be included in your internet business plan. See Internet Business Planning.

It specifically relates to a profit and loss form that you can download by clicking on Profit And Loss Form. Note that the form is a spreadsheet in .xls format . You will be asked if you want to open it.

What Is A Profit And Loss Statement

Normally maintained by your bookkeeper or accountant , a profit and loss statement ( P&L ) shows the income and expenses for your company over a period of time.

P&L's are also used to project future company operations for the owner, banks and investors.

For you, the micro business owner and internet entrepreneur, they are your financial statistics ( stats ) pages.

You use them to predict if a web site will be profitable.

And after you put the web site online, you update it with your actual results, or stats, to see how much money you are actually making or losing on that web site.

Small business plans for offline businesses generally call for profit and loss projections for 5 years. That is a waste of time for the micro business owner. All that you need to get started are projections for 6 months. These will tell you what you need to know. Of course, you can project for a year or more if you wish. But for most of us, six month projections are fine.

What Is In A Profit And Loss Statement

A P&L lists your income and expenses. The expenses are subtracted from your income to show your profit or loss.

Your micro business may use one or more web sites. So that you can be very specific in your planning and monitoring processes of the various web sites and income streams on each website, the Micro Web Business P&L Profit And Loss Form breaks down income section into profit centers.

For a P&L for a single website the profit centers may be income from the sale of your main product plus income from advertisements and affiliate programs such Google Adsense income, eBay Affiliate Income, Amazon Advertisements income and other affiliate product income.

If you use more than one website, each website should have its own stats page, or P&L. The totals from each stats page should then be transferred to your main P&L. Your profit centers would then be website 1, website 2 and so on.

How Is A P&L Used

Your accountant/bookkeeper will use your income and expenses records make one for your tax and historical business file. If you were planning to go to a bank for a loan, or to get money from an investor, that accountant/bookkeeper may make one that shows your projected business operations for up to five years or more.

But you, as a micro business owner will use it as your stats page. You will use it each month, as sometimes more often, to check if you are wasting your time or not. And even before you start, you will use it to make estimates.

Before starting your business, you fill in the blanks on the P&L with your best estimates. This pre-start up P&L is what you use to determine whether your business has a chance to be profitable or not. By completing it you actually run your business on paper.

If the P&L shows that after a couple months your business will be running at a profit on paper, then you might have a chance of surviving on the internet - provided that your basic assumptions were correct and that you execute your plan exactly as you wrote it. If on the other hand, it does not show that your business is running on a profit, then you know you have to go back and re-plan.

Do note that there are many web gurus that preach that to succeed on the web you have to work long hours, sometimes for years, before you start making money. And then there are those who talk about making money very soon after a web site goes on line. When you plan, go with the latter. If your website does not show you making money within six months, you have a problem! Change your plan!

After you go online, you enter the actual figures and compare them to your estimates. You should check your income and expenses and keep your P&L up-to-date on a monthly, if not weekly, basis. It will show you very quickly discrepancies between your actual results and your estimates. If you see differences between your estimates and actual performance, you should to start looking for reasons and make corrections in your activities..

If you are generating income from multiple web sites and multiple sources, you will do well to have individual profit and loss statements for each web site because each web site is actually a micro-business. In that way you can track the results of any particular web site. It is then just a simple matter of copying totals from these profit centers on to your main profit and loss sheet.

Completing Your Profit And Loss Statement

For your convenience, there is a profit an loss form for web sites and for a website business at Profit And Loss Form. Note that the form is a spreadsheet in .xls format . You will be asked if you want to open it.

How To Run Your Financial Analysis

Running your financial analysis is fairly simple. Let's go through it step by step.

First lets put the P&L forms on your computer. The ones that you download are in excel format so it is just a matter of opening them and filling in as much data as you have gathered.

In fact, fill in every box with an estimated number or a zero. In the taxes box, enter a zero for now.

To begin, fill out the first month completely so that you see how the form works. Then go on and fill out the form for the first six months of operations.

Look at the figure Net Profit Or Loss Before Taxes. Divide it by the number of hours per month that you have allocated to running your business. That will tell you how much you are making or losing per working hour.

If you see a continuing loss, you have to make some changes. That means increasing your sales or cutting your expenses.

Most likely the solution will be to increase sales by adding more streams of income and that means more micro-sites. Make a website plan for each of the additional micro-sites and add the income from them to your form to check the results.

Remember that unless you have these site in semi-automatic mode you will have to increase your time allocation. That will change your hourly loss or profit.

Your Site Will Not Make Money Without Active Marketing

Regardless of how hard you worked on your business plan, it is all about advertising and marketing. You have to spend time laying out those plans.

Here is some of the most important advice to which we can refer you. Read some marketing tips and hints at Micro-Business Marketing.