The Profit and Loss Account summarises how successful your trading has been.
However, it takes no account of whether the money for your sales has been received, or whether you have paid for the goods purchased or services received - for this a Cash Flow statement is required.
| Your Business Plan looks into the future, ideally for a small number of years. A 3 year forecast would be typical. The Profit and Loss Account should be summarised as year totals. |
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For your own purposes, your Profit and Loss Account could be estimated on a month by month basis. This will give you the opportunity to check your actual results against the plan as the months go by. Many businesses draw up a 3 year month by month plan - then take the first 12 months and use it as the budget. |
Timing Issues
When you prepare the month by month plan, you begin to appreciate timing issues. For example you may make a sale in May, but not receive the money until June. So in the Profit and Loss Account, the sale appears in May, but in the Cash Flow the sale appears in June. These timing differences also occur with expenses: some expenses, eg. salaries are paid in the month, whilst your rent may only be paid quarterly – but would need to be spread across 3 months in the Profit and Loss Account.
OX SYSTEMS has pre-prepared Business Plans which will speed up this process for you. Please contact us for this service.
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