Understanding Your Retail Business Income Statement
Retail businesses have retail profit and loss statements produced monthly to measure the success of the business. The retail profit and loss statement can also be used to predict future months’ incomes and expenses. Many retail business owners are unaware of how to read and utilize retail income statements.
We’re here to explain what a retail income statement is, what’s included in it, and how to use one to your benefit.
What is a Retail Profit and Loss Statement?
A retail profit and loss statement (retail P&L statement) is a document that outlines how your retail business performed, typically over a period of one month. This document is usually created by an accountant and is often overlooked by business owners. It’s important for business owners to review and understand retail income statements to make sure their company is in a good place.
In the next portion, we will go over what sections are included in a retail income statement and what each one means.
What’s Included in a Retail P&L Statement?
There are several sections that make up a retail income statement. Each of these sections contributes to your business’ “bottom line.”
Revenue is all the money that comes from sales during the reporting period. This is sometimes referred to as the “top line.” This number reflects your business’ total sales during the period.
The net sales line takes into account any discounts or markdowns and subtracts those from the top line. Your net sales amount is the true amount of money you made by selling your products or services.
The next section on a retail P&L statement is the expenses section. In the expenses section, the total expenses for running your business are documented. Usually, expenses are categorized and expenses include things such as inventory and operating expenses. The operating expenses relate to your business’ costs like rent, payroll, and utilities. Depreciation of assets is also included in the expenses section of your profit and loss statement.
Lastly, there is the profit section. The first time profit is mentioned on the sheet, it will represent the revenue minus expenses.
There may be another more specific line listed called EBIT which stands for Earnings Before Taxes. The EBIT line shows your profits before taxes are taken out. Accountants also sometimes include an Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) line. This EBITDA line lets you see your earnings without depreciation since depreciation is not cash that physically leaves your account. This gives business owners an accurate picture of the health of their business.
The net profit or net income section is often referred to as the “bottom line” because it is the profits minus all the expenses. This is the true reflection of the money that will stay in your business account from the set period you measured.
As you can see, retail P&L statements aren’t too complicated in essence. You just need to understand how each section plays a role in getting to the bottom line. Let’s move on to how to utilize a retail income statement.
How to Use a Retail Income Statement
Retail P&L statements provide valuable information about the current state of a retail business. They show whether a business is “in the red” — meaning they had more expenses than revenue — or if they are bringing in profits.
Business owners can use these statements to plan for the future and make decisions about improving their budget and focusing their sales efforts.
Retail income statements are an easy way to see if a business needs financial support to thrive. Sometimes it just takes a little assistance from a lender to boost profits through the roof.
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