Understanding the accounts in this way is key to online success and alignment from the accounts department to the online operation. Your P&L and balance sheet can be analysed in more detail to determine key performance indicators (KPIs) as outlined below.The fundamental difference is that online marketing and platform costs are a true Cost of Revenue and NOT an Overhead (as advertising would have been historically). View our example balance sheet Financial health indicators Non-current liabilities: Items not expected to be settled within the next 12 months, such as mortgages on buildings and long-term loans.Current liabilities: Items expected to be paid within the next 12 months, such as credit card debts, tax owed, short-term loans, and stock purchases.Non-current assets: Items not expected to be consumed or converted into cash within the next 12 months, such as equipment, vehicles, buildings, and goodwill.Current assets: Items of value that are expected to be consumed or converted into cash within the next 12 months, such as stock that turns over regularly and payments from debtors.Assets and liabilities are divided into current (short-term) and non-current (long-term) as shown below:.owner’s equity – the amount left after liabilities are deducted from assets.liabilities – including loans, credit card debts, tax liabilities, money owed to suppliers.assets – including cash, stock, equipment, money owed to business, goodwill.A balance sheet is usually completed at the end of a month or financial year and is an indicator of the financial health of your business. Balance sheetĪ balance sheet is a snapshot of what a business owns (assets) and owes (liabilities) at a specific point in time. Net profit and taxable income can be different because for tax purposes some expenses may or may not be allowable and some income may be assessable or not assessable. Net profit is available for distribution to shareholders as dividends. Each partner pays tax on the amount of net profit they receive, regardless of how much the partner may have taken out as drawings.Ĭompanies – salaries for working directors are treated as an expense along with employees’ wages. If there is no agreement, net profit is shared equally between the partners. Partners – if there is a partnership agreement, net profit is allocated according to the proportion set out in the agreement. You pay tax on the net profit regardless of how much you have taken in drawings. Sole traders – drawings (money taken by the owner for personal use) are not an expense. Your accountant can provide detailed advice regarding your structure. Your business structure will determine how some expenses are calculated. View our example profit and loss statement More profitable businesses generally spend less of their income on expenses. A fall in net profit margin generally means you are paying more in expenses, which needs to be monitored. The net profit margin is an indicator of how much profit you make (before tax) from every dollar you spend. If your gross profit margin decreases over time you will need to determine the reason and take action to address the decline. The higher the gross profit margin the better, as your business keeps more from each dollar of sales. Gross profit is an indicator of efficiency. What percentage of the sale price covers the fixed costs of my business?Įxpenses as a percentage of sales/revenue What percentage of the sales price covers the cost of providing or producing the product or service? When reviewing your P&L it is useful to analyse four key benchmarks or performance indicators (KPIs). The net profit will show whether your business has earned or lost money. net profit (gross profit minus expenses)įormula: Sales – COGS = gross profit – expenses = net profit.The P&L will inform you whether your business made or lost money for the month under review. Usually produced monthly, this is a summary of income and expenses for your business.
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