Latest / Travel Agency in a Year / Day 148 - Understanding what the heck is a P&L statement: TA edition
Transcript
- Rachel K: Welcome to the Travel Agency New Year Podcast. My name is Rachel K, your host. Thanks for coming back. Thanks for joining me today. Today is day 148. What is a P &L statement, income statement, profit and loss statement? I just call it a P &L because I'm lazy. You may have heard it. Those other, I don't even know what else it's called. That's fine. So you can do a P &L statement, profit and loss. On a monthly basis, quarterly basis, annual basis, I can't talk. I recommend doing this monthly probably. Definitely quarterly and annually. You definitely need annual for your taxes. Okay, this can almost always be generated by the accounting software you're using. If you do not have accounting software, you could possibly find like a Google... Profit and Loss Statement template online for free and then it will have the different categories and you input everything, the formulas are all there. It shows all of your monies, all of your expenses, all of your costs to show you if the business actually has cash flowing. Is it profitable? Why do you want to look at one? Overall business health, if you have no money coming in, you don't have a business. The IRS even, if you do not have money coming in ⁓ after like two or three years, will pull your ability to report that and like all the write-offs that are associated with being a small business owner because it's now a hobby. It's not even profitable. And it's like, you have to show a profit, right? Okay so why, and that's so that your business health, like do you have money? Because that's like the pulse. Cash flow is like the blood flow in your body. Like cash flow in a business is like the blood flow in your body. We have to have blood constantly pumping throughout our body or everything shuts down. Same with cash in a business. ⁓ What makes money? Decision makers. What makes money? What's making you more money? What's making you like, ooh, this product or whatever is doing great service, and where you might need to cut costs. Because if you have everything itemized into different categories, you're like, what do you mean I spent $18. million dollars on travel this year. Well that's why I'm broke. ⁓ It is also required in many cases for getting any kind of loan. They want to see a P &L statement. ⁓ Obviously, I already mentioned it with taxes and budgeting. So if you can see, especially if you're doing this monthly or quarterly, over time you're going to see, okay, well, over the last two years, my revenue is significantly lower in like November of every year or August. you'll see patterns, right? And therefore, I must have additional cash set aside to cover the expenses because I'm operating at a loss here. But in January, I'm always profiting this much money. So I can take that money and allocate it for August or November or whatever. ⁓ It is one of the most important, this is my last episode in this batch. I'm getting so tired. It is one of the most important parts of your business. Like I said, like your blood flow. It's like, do you have a pulse? Do you have profit? Are you just bleeding out? Like, is your business's femoral artery just cut open? Well, you got about, it's got about two minutes. And then it's dead. ⁓ So what is typically included in a P &L statement? Well, I already mentioned it, your revenue. This is all your fees, all of your commissions. If you sell any other products such as like, I don't know, little guides or something that's maybe a little more evergreen on the side under this company's name, that's revenue. Everything is revenue. You could count booking bonuses as revenue. if they're paid out to the agency, not to the individual agent, there's a difference. ⁓ Your expenses. your operating expenses, travel, rent if you rent a space, equipment, wages, then there's the, I, ee-bid-a-da-da. which is earnings before interest, tax depreciation and amortization. Most of us aren't gonna have anything that's amortized. I can't say that word either apparently. You may have something like you can depreciate your car if you actually use it in your business, like if it's like sandals wrapped or something like that. You can depreciate the equipment in your office like your computer. And then there's earnings before tax. And then your profit and loss overall. So it takes all of those things into account. And it'll show you is this business actually making money. You might think, oh I made $30,000 this quarter. But then you blew a bunch of money, maybe for good reasons, but you had to hire an attorney and that was $4,000. So now you're down to $24,000. And your general monthly business expenses, just the operating expenses, is $1,000 a month. So now you're down to $21,000 and then you have to factor in your tax rate, which let's just say that's another... Let me think. We'll just make it 20 % of 30 grand. So it's another $6,000. So now you're down to $15,000. And then you decided to buy two $3,000 courses. Now you're down to $9,000 in your profits. And then you had to buy a new laptop. So now you're down to $8,000. And you had, hmm, what other expenses? Oh, like, maybe some local business licensing things or like LLC filing stuff, that could be another $1,000. Now you're down to $7,000. And this is over a quarter, people, not a month. That $30,000 has become seven. So you can be like, ⁓ I grossed 10 grand a month, but your take-home pay is barely over two. And that's if you had nothing else to worry about and your tax rate was only 20%. which it's typically 35%. But then you also invested in a fam trip that was $5,000. Now you're down to two grand over three months. That's not... And then you paid yourself wages, but you already had 15,000 in the account before you earned this 30. So you paid yourself wages and you paid yourself, let's say four grand a month. or maybe you paid yourself six grand a month, so you're at a loss of $1,000 at that point. This is why you need to look at the P &L statements, because your bank account might show one number, and your projected revenues might show another number, but if you don't have the full picture, especially at a glance, it's a, run it, run it in your accounting software, take a look, see, loo. and you will see very quickly if you are actually creating a profit, okay? Even if you don't pay your quarterly for some reason. ⁓ So you're just like, ⁓ that's fine. Put it down on the P &L statement because you do technically, that's your estimated taxes. You're not gonna get penalized if you don't make enough money, know, for not doing quarterly filings. ⁓ but that money needs to be paid at the end of the year. So you can either do it quarterly or you can do it once a year. Those are your options. And if that money's not there, in your account, you are technically operating at a loss. Okay? Wake up call for people, look at your P &L statement. Every quarter, maybe monthly, definitely annually, it's an eye opener. There's my song, terrible song. Thank you for joining me today. Save this episode if you're like, I wanna listen to this later. Probably don't wanna listen to this one later. You're like, this is stressing me out. ⁓ And have a great day, bye.