Trading and profit and loss statement as at 31.5.07

	£	£
Turnover		45,000
Opening stock (1.6.06)	4,500
Add Purchases	12,000
	16,500
Less Closing stock (31.5.07)	2,500
		14,000
Gross profit		31,000
Less Rent	4,000
Rates
Light/heat
Telephone/Post
Insurance
Hire Purchase
Advertising
Loan repayments
Provisions for bad debts
Depreciation
Drawings	4,000
Other expenses
Total expenses	12,100	______
Net profit		18,900

The profit and loss statement shows the profit made by a business during a particular trading period. It is calculated as total sales revenue minus total costs. Unlike a balance sheet, which gives a picture at a particular moment in time, the profit and loss statement shows profit made over a period of time.

If a profit is projected after tax and other expenses, the business owners can then decide how much to retain in the business and how much to pay out to themselves. If a loss is projected, the owners can plan in advance how to raise the finance necessary to pay for the loss.

New firms are usually required to produce a projected profit and loss statement for their first year of trading in order to give potential lenders an estimate of how well the firm is likely to do. Once the business has started, managers are likely to produce a profit and loss statement every one to three months in order to monitor business performance.

Monitoring and reviewing business performance

Once a new business is up and running, managers will want to monitor its financial performance very closely in order to be in a position to take immediate corrective action when required. Potential lenders will look for evidence that the business is going to be run according to principles sound financial management, and will expect to see details of how this is going to happen in the business plan.

The main means of monitoring used by small firms are as follows:

· Regular monitoring of cash inflows and outflows against the cashflow forecast.

· Comparing actual sales and purchases against operating budget plans. A comparison of plans with outturn can be made using variance analysis. It is important for an organization to keep its costs as low as possible, and within budget.

· Producing monthly or three-monthly profit and loss statements and balance sheets. These accounts can reveal a great deal about business performance. Financial performance can be monitored using ratio analysis, for example, measuring profit margins, return on capital employed, and liquidity ratios.

· Monitoring aged creditors lists and aged debtors lists. This will tell a business how much is owed to suppliers and when payments have to be made, and how much is owed to the business for sales made on credit. Chasing up late payers may be required to keep cashflow projections on target and to provide funds, so that creditors can be paid on time.

Conclusion

To be workable, a business plan must be realistic; it must take account of the shortcomings of the firm and of the people involved. This will help to ensure that the plan is achievable within the resources available. For an average business, a three-year projection will be adequate, with the first year shown in detail, and the next two in outline. In quickly changing industries, such as computers or consumer electronics, the planning horizon may need to be shorter – perhaps 18 months to 2 years.

A business plan should not be seen as a rigid, inflexible answer to a firm’s problems. Business conditions are continually changing, and a good business will adapt its plans to suit changes in the market or other circumstances. Business plans are only useful if they are realistic. A plan serves no purpose unless it can be delivered.

Research into small business growth and success suggests that there is a clear correlation between the amount of time invested in business planning and the ability of firms to sustain stable growth over time.

Дата добавления: 2015-12-08