In this third article in our ‘How to…’ series, we reflect on what we learned from Martin Curry, STEM Healthcare, in his training session on managing the money.
What is a profit and loss table?
A table detailing all business transactions showing all incoming and outgoing cash activity. This will inform potential investors and credit sources how your business will generate its income and manage its costs. Documenting this information is important to show the progression (improvement) over a period and to forecast whether your business is set to make a future profit or loss.
So why is forecasting important?
A profit and loss table give businesses an idea of where the business is headed financially.
If your forecast suggests that profit levels will be low and therefore capital will be limited, it can help you to become more cautious with your credit and supply chain arrangements. Having this level of insight can help you to manage your risks and allow you to rethink your strategy in order to reduce loss and increase profitability.
Monitoring your manufacturing costs is critical in order to represent the efficiency of the production process. There are two types of costs: fixed and variable.
Fixed: rent, rates, employee, insurance,
Variable: raw materials, transport, utilities,
Keeping track of the manufacturing costs will allow you to review the expenses associated with all the resources spent in the process of making the finished goods. To maximise the productivity of each unit of materials you use in the manufacturing process, ensure you review your procedures, materials and ensure waste is reduced to its minimum during the process.
Awareness of the market is key to impressing potential investors; knowing what the key drivers are and understanding the risks and the market demand. Having this information enables you to provide evidence that you can effectively evaluate the commerciality of the project.
In summary, investors will be able to learn a great deal from the financial figures of a business. Thus, preparing a profit and loss account (detailing the business transactions) is critical to providing an insight of the business’s overall position within the market.