Advantages of ProfitLoss Statement

A profitloss statement is a document that businesses prepare to measure their expensesrevenue in a specific periodIt shows a company’s financial statusprogress during a plotted periodThe statement shows how a company can make a profit by increasing revenuereducing costs or by combining the twoIt provides details of different revenuesexpenses such as net sales, sales expenses, grossmargin profits.

Here are the advantages of preparing a profitloss statement.

1Helps to measure net income

The main advantage of preparing profitloss statements is to help the company know their net income during a specific period.  You can use results to determine if the sales method you were using worked effectivelyLow sales will affect the company’s net income.

2Helps you to make wise decisions

When you prepare a profitloss statement, it will help you know your company’s performance during a specific periodWhen you know your company’s performance, you will make wise financial decisions to increase profitYou would make informed decisions on investing your company’s money that would have resulted in losses if you did not prepare a profitloss statement.

3Have proof of your business’s achievements

When you prepare your profitloss statement, you can provide a record of how your business has been performing at a certain durationYou can use this information to prove to your business investors the company is succeeding,they should continue investing in your businessInvestors will use the profitloss statement to determine if the company makes profitsif there will be future returns from their investments.

You can also use the profitloss statement to prove to your buyers that the business is worth their money if you are sellingYou can use the profitloss statement as a measure of trust with you as your new business partners may request it to know how the business is performing.

4Helps you to prepare to file tax

Preparing your profitloss statementother business documents regularly help you to have all the information you require you to file the tax returns when you needUpdating your profitloss statements helps you update your accounting software.

5Helps your business get loans

Profitloss statements show a company’s ability to create incomeSometimes your business might need financial help to fund its operationsMost banks give loans to smaller businesses based on their financial performances in the past yearsThey ensure they give the right loan amount which it can repayA good profitloss statement history is important to help your company get the best loan terms.

Bottom line

Preparing your company’s profitloss statement is very importantIt helps you know if your company’s progressYou can use profitloss statements to make wise decisionsYou also use it to get more investors in your company if it has good performance.