Every business that wants to survive and be profitable needs to keep track of its earnings and expenses. Large companies have an accounting department to take care of counting the beans, but when you work for yourself, that responsibility falls on you.
It can be easy to get bogged down in every financial transaction in your business and lose sight of the big picture… but knowing what’s going on with your work-at-home business’s finances is critical if you’re going to make some serious money. That’s where a P&L comes in handy. Let’s dive in!
What Is a P&L?
The profit and loss statement — also called a P&L, PNL, or sometimes income statement or income and expense statement — offers a “snapshot” of your income and expenses over a set period of time (usually a year, or year-to-date). If you’re serious about earning money from home, not just selling things or taking surveys here and there to make some extra cash, then you need to keep track of these numbers.
It lists out all your income, all your expenses, and your overall profitability. By having these numbers tracked over time and laid out simply, you can get a good idea of what’s going well in your business and what needs to be tightened up.
What Goes In a P&L?
There are two main parts to the PNL — the income, and the expenses. To make it easier to calculate things during tax time, some businesses break out income and expenses according to different categories. When you’re working for yourself from home, you may want to do the same thing.
We’ll go into the specifics of how to set up your own custom PNL in the next section. But for now, think about the different ways you’re earning money from home. If you’re a freelancer, you may have different income streams from VA services, freelance writing, and selling an ebook on Amazon; when you make your income statement, list each of those 3 income streams separately. If you’re a blogger, think about the different ways you’ve monetized your blog, and list each of those separately. If you’re a reseller, you may want to have separate categories for Amazon, eBay, Craigslist, Facebook, and specialty (for when you sell one-off items to individual specialty shops or collectors).
Approach your expenses the same way. Set up categories for the expenses that make the most sense for your work-at-home business. This may include listing fees, payment processing fees, membership or website fees, postage, cost of materials, and advertising.
And the beauty of a P&L is that you can always adjust it by adding or subtracting categories. It’s not a once-and-forever thing. This should be a business tool, so make it work well for your business.
How to Make a PNL
The easiest way to set up your profit and loss statement is in a spreadsheet. You might want to use whatever spreadsheet software is on your computer, like Excel or Numbers, or you can use an online one like Google Sheets.
First, decide what period of time you want to track. For many people, it makes sense to track expenses monthly over the period of a calendar year. In this example, we’ll set it up that way.
Then, set up the main section. The side row might read something like this: Month, Income, Expenses, and Net.. Let’s break each of those down:
The Month column is where you’ll list each month, starting with January and going across to December. The Income row is what you’ll use to record that month’s income — this means every penny you actually receive in payment for something, not money promised and before any fees are taken out. The Expenses row is where you’ll total up all your expenses for the month, including those fees. The Net row is your Income total minus your Expenses total.
The last column of the P&L should be the sum of each row — so you’ll have a total of all monthly income, all monthly expenses, and all net income running down the far side.
That’s a basic P&L right there. But if you want to make it even more useful, here are some things you can try:
- After the Net row, add a Tax row where you’ll factor in the amount you want to set aside for taxes (usually between 20 and 30% of net profits)
- A Pay-Out row, where you list the amount of money you’ll actually “pay” yourself. It could be a percentage of net income, all net income after taxes, or a pre-set amount.
- Add sections below the main profit/loss statement where you track your income and expenses in greater detail for each month.
Click here to get my Profit & Loss spreadsheet free.
Closing Out the PNL Discussion
Once you’re set up, it just takes a little bit of monthly maintenance to keep your PNL up-to-date and working for you. When you start using this invaluable business tool, you may find that you get addicted to the numbers. It’s empowering to know exactly how much is coming in, going out, and staying in the bank. The more informed you are about your profitability, and the more you study your income streams and expense categories to fine-tune your finances, the stronger your business will be. And the best part is, it’s almost 100% basic addition and subtraction — no fancy knowledge required! Your spreadsheet formulas can even take care of the math for you.
If you would like a more thorough and complete accounting system, I highly recommend looking into Harvest. You can invoice clients, import bank transactions and create great reports. You will also save big on PayPal fees if you select PayPal Business Payments when invoicing your clients (pay only $.50 per transaction as opposed to a percentage).