See also: Startup Bookkeeping: Common Mistakes VC-Backed Startups Make and How We're Solving Them These groupings makes it simple to look at your startup’s P&L statement to get a sense of what your rent costs are, what your salary expenses look like, and other common (but pivotal) questions about your company’s financial health. *At Zeni, our goal is to make understanding business finances easier for founders, which is why we break down operating expense groupings by expense type, such as: The P&L statement is also home to the ubiquitous “bottom line,” which is ultimately your revenue (the “top line”) minus the cost of business operations.Ī standard P&L statement is broken down by:Ī standard P&L grouping of expenses typically includes*: It’s also what investors and bankers analyze before making decisions about investing or lending funds, so it’s critical that companies maintain accurate P&L statements in accordance with GAAP for an at-a-glance look at your company’s financial health. The P&L, also referred to as an income statement, profit and loss report, statement of operations or statement of earnings, is the most common financial report for businesses of every size. Now that we're on the same page, let's get started.Ī profit and loss statement (P&L) provides a summation of the revenue, cost of sales, gross margin and expenses that a company incurs during a specified period of time, usually across a month, quarter, or year. If you’re concerned with something in your financial statements, make sure to seek help from an experienced bookkeeper or accountant. This article was written to provide those with limited exposure to financial statement a working understanding of the profit and loss statement. See also: Hit the Books: When To Hire a Bookkeeper For Your Startup Plus, the accrual accounting method is required for businesses earning $5 million annually in revenue or businesses that report financial statements to outside parties, such as investors, per the generally accepted accounting principles, or GAAP. This article is based on the use of the accrual accounting method, which tracks money not in terms of cash inflows or outflows but in terms of when it is earned or due as opposed to the cash accounting method, which books expenses and income when cash exchanges hands.Īt Zeni, we use accrual accounting method for all of our customers and recommend it to startups and small businesses because it gives you a more accurate overview of your business’s financial health, allows for strategic business decisions and the ability to scale and prepare for exit scenarios such as mergers/acquisitions or initial public offerings. This article is the first installment in our series of articles demystifying the most common financial reports startups will encounter.īefore we dive in, let's quickly review a few key assumptions which impact the content of this article. In this article, we'll take a close look at what makes up the P&L statement, how to read one, and things to consider when analyzing yours. Not sure exactly what to look for when reviewing your startup's Profit & Loss Statement (P&L) or Income Statement? You've come to the right place.
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