Your profit and loss (P&L) statement is one of the most important pieces of documentation to include in your optometry bookkeeping practices.
It is a statement of your income and expenses during a specific period - monthly, quarterly, or annually, and is the best indicator of your businesses’ profitability.
Why should I have a P&L statement?
Simply put, a P&L statement shows where you are making money and where you are spending it.
To get a better understanding of the growth of your business, you can compare your current P&L statement to one or multiple from the same period in previous years. You can then use that data to analyze your business growth and examine your increased or decreased profitability to pinpoint factors that may be affecting your bottom line.
Taking a look at your profit and loss statement, in conjunction with your balance sheets and cash flow statements, before making any big decisions as to how to grow your business or in which direction you should be moving forward is vital.
Additionally, P&L documents are an essential part of keeping your tax filing system up-to-date and accurate and are an essential part of filing your taxes.
What is included in a profit and loss statement?
Your profit and loss statement can be as detailed as necessary and contain data relating to your practice and the specific services you offer. However, some basic data points should be present on any comprehensive P&L statement, including:
Revenue is the summary of all sales within a specified period.
· Direct costs
Direct costs are any costs that directly relate to the sale of services. It can include the cost of products, but it will not include things like insurance, payroll, rent, or marketing.
· Gross profit
The gross profit is the revenue less the direct cost. You can calculate your gross profit margin by dividing your gross profit by the total revenue and expressing this figure as a percentage, or simply by using one of the convenient gross profit margin calculators available online. This percentage is important, as it can indicate how financially healthy your business is.
· Indirect expenses
Essentially, any expense that is not included in your direct costs is included here. This may pertain to payroll expenses, consulting fees, insurance, rent, training, and marketing.
· Net income
You can calculate your net income by subtracting your indirect expenses from your gross profit to show how profitable your business is.
Some expenses in the optometry industry are difficult to accurately place on a profit and loss statement because they are service-based and contain product sales as well. In these cases, it is best to work with optometry accounting experts, like those at Caro & Associates, to designate accounting practices that are tailored to your clinic.
Profit and loss statements for growth
Previous P&L statements should be analyzed to help predict sales and help determine if there is profit available to re-invest back into the business.
If your P&L is used in conjunction with other financial statements, it can give you an idea of where profits would be better invested. If the statements show that the cost per service is high in comparison with the industry average, then other solutions, like an investment in more efficient equipment, can be identified and administered.
The professionals at Caro & Associates can help you compile and track your P&L statements and use this powerful tool to designate the best practices for expanding your optometry business and guaranteeing its continued success.
Tax season creates additional stress on top of trying to run your business and keeping it afloat. Outsourced accounting services are always the best option for a small business as it allows experts to handle this maze of tax laws without you having to pay a full-time tax accountant.
There are many benefits to outsourcing the accounting processes for your business. From being able to spend more time on the goals of your company, to averting costly mistakes, having a team of experts on your side helps your business grow. They can also help reduce instances of fraud.
It’s hard to believe that we are already into July. Even with the deadline for filing your return and making a payment (if you owe) being extended to July 15, 2020, it still seemed like it came upon us fast. With only a few weeks left, be sure to get any final documents to us and answer any outstanding communications immediately.