How to Write a Profit and Loss Statement
One of the financial documents that we ask for when you apply for a crowdfunded Honeycomb loan (and is standard when you look for a small business loan pretty much anywhere) is a profit and loss statement. Also known as an income statement, your profit and loss statement lets you see how much revenue you’re bringing in, against how much costs you’re incurring, so you can see how profitable your business is.
Why does a lender need to see a Profit and Loss Statement?
A profit and loss statement is a good measure of how profitable your business currently is. You don’t necessarily need to be profitable at the time you apply for a Honeycomb loan, but a Profit and Loss statement gives an idea of where your expenses are, which allows the loan application reviewers to look at the balance between your income and expenses.
We also ask that you show us profit and loss statements from the past three years, or whatever you’ve got if you haven’t been in business that long. By comparing these profit and loss statements year-over-year, we can see whether you’ve been able to increase your profitability over the years.
How do I write a Profit and Loss Statement?
At a high level, a Profit and Loss Statement is basically the formula Revenue minus Costs equals Profit.However, there are a few different levels to pass through so you can see just what kinds of costs are taking up more of your revenue.
Step 1 - Calculate Your Revenue
Your revenue is basically your income, before all costs are subtracted from it. How much money did you generate from running your business? This can be easily found by looking at your point-of-sale system, or wherever you process payments. Pick a time span to do all these calculations - a month, a quarter, a year - it’s up to you. For Honeycomb applications, we ask for the past three years of Profit and Loss Statements for your business.
Step 2 - Subtract Cost of Goods Sold to find your Gross Profit
The Cost of Goods Sold is essentially the expenses that are directly related to the products you’re selling. If you’re a restaurant owner, this is the ingredients of your food and direct labor associated with the food (so, your cook’s wages).
Step 3 - Subtract Operating Expenses to find your Operating Profit
Your operating expenses are pretty much all other expenses that you pay out while running your business. This includes utilities, sales and marketing costs, payroll for indirect labor (you restaurant’s wait staff and cleaning crew, for example), rent, insurance, etc.
Step 4 - Subtract Interest Payments, Taxes, Depreciation, and Amortization to find your Net Profit
Now, before you find your net profit, you need to subtract all of the other, mostly intangible expenses that accumulate from your business. This includes interest payments on any loans you have, taxes, depreciation of your equipment, and amortization of your loans. Once you subtract all this, you have an idea of how much profit you made from your business!
If this all still seems like a lot, there are resources you can use to make it easier to run these numbers. SCORE has an excellent template that you can use to just plug-and-play and build a profit and loss statement. Once you’ve written your profit and loss statement, you’re one step closer to completing your Honeycomb application!
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