3 Areas You Should Analyze Your Profit & Loss Statement

Analyzing your financial reports is an absolute must if you’re taking the time to do your bookkeeping every month.  Good financial reports—such as a profit & loss statement —help you make better decisions and have greater profitability as a business owner. 

The questions I hear most are:

  • Which financial reports should I analyze?
  • What exactly am I looking for in these reports?
  • What difference will it make in my business?

Well, I’ve got answers.  Let’s get into it!

3 Areas You Should Analyze on Your profit & loss statement | Rising Tide Society
Photo by Christina @ wocintechchat.com on Unsplash

3 AREAS TO ANALYZE YOUR PROFIT & LOSS STATEMENT

The three basic areas you should be analyzing on your profit & loss statement every single month are:

  • Income sources
  • Operating expenses by category
  • Profit margin

#1 – Income Sources on your profit & loss statement

Questions to ask:
#1. Which offer generated the most amount of sales?
#2. Which offer generated the least amount of sales?
#3. Was my target sales goal met?  Why or why not?

Figuring out which offer generated the most amount of sales can help you determine if a particular service offer might appeal more to your audience.  Armed with that information, you can tailor your marketing efforts to target more of that audience and increase sales.

On the flip side, knowing which offer generated the least amount of sales can help you determine if it’s time to ramp up your marketing efforts to sell more or if it may be time to discontinue the offer altogether. 

Most business owners set an annual sales goal; however, setting monthly checkpoints for that goal is crucial to tracking progress and eliminating year end surprises. 

Determining why or why not could produce valuable insight you can use when setting future goals—things such as a slow or busy season, increased competition, unexpected downtime, etc.

#2 – Operating Expenses

Questions to ask:
#1. What are the top 3 operating expenses?
#2. What percentage of operating expenses went toward marketing expenses?

Your top three operating expenses should be ones that help you create, sell, or deliver your offer to clients/customers.  If they don’t, evaluate just how necessary they are and how you can reduce or eliminate them.

A potential area for overspending is marketing expenses.  Your general marketing budget should be around 5%, with a max of 10% during periods of extreme visibility and growth.  If marketing expenses consistently go beyond 10%, your business could experience slower profit growth (thus, decreased sustainability) even when your sales are booming.

#3 – Profit Margin

Questions to ask:
#1. What is the profit margin percentage?
#2. How can I make more sales?
#3. Where can I streamline expenses?

To find your profit margin percentage, take total profit and divide it by total sales. 

A good profit margin is 70%.  If you’re already at 70% or better, great!  You have opportunities to spend and generate even more sales—think, outsourcing.  Or, save!

If you’ve not hit 70% profit margin, think of free ways to get in front of people who need your offer.  Also, consider how you can streamline your expenses and maintain or improve your level of service—think, automation.

Paying attention to these three basic areas is a great place to begin with analyzing your profit & loss statement. 

Are you ready to get a clear view of your budgeted expenses every month?  I’ve got a guide!  Download my Know What It Costs booklet to really get to know your numbers.


Ready to reframe your thoughts on money? Get our Money Mindset Guide here.

Dondrea Owens

Dondrea Owens is a Certified Professional Accountant (CPA) who helps creatives and small business owners get a handle on their cash so that they can support their lifestyle, grow their business, and save for the future.

Through her boutique agency, The Creative’s CFO, Dondrea supports creatives through monthly bookkeeping and offers financial-focused strategy sessions that help them really get to know their numbers and gain some breathing room to focus more on the work they love doing and stress less about money.

When Dondrea is not working, she enjoys having fun with her family, sipping a smooth glass of Malbec, and reading romance novels.

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