Management & advice for entrepreneurs
How can I analyze my profit and loss statement to determine if my business is profitable?
The income statement summarizes, for a given accounting period, your company's revenues (sales) and expenses ( purchases ). It allows you to determine the profit or loss for the period.
To analyze the profitability of your business, several elements of the income statement can be examined:
Gross operating margin: this corresponds to the balance generated by the business activity before taking into account salaries, depreciation and amortization, provisions, and other operating expenses, which are subsequently factored into the calculation of operating profit. It allows us to assess the business's ability to generate a surplus before these various expenses.
Operating profit: This corresponds to the profit generated by the company's operating activities, after taking into account various operating expenses, including salaries, depreciation and write-downs, provisions, and other operating expenses. It allows you to see whether the activity itself generates a profit or a loss.
The financial result: this takes into account financial income and expenses, including interest on loans and other financial transactions. It allows us to measure the impact of financial transactions on the company's profit.
The result for the financial year: this corresponds to the final result after taking into account the various revenues and expenses for the year, including financial results and income tax. A positive result corresponds to a profit; a negative result corresponds to a loss.
To properly assess your company's profitability, it's best not to look solely at the current year's profit. Compare the evolution of revenue, gross operating margin, operating profit, and profit for the year over several years . This allows you to see if profitability is improving, declining, or remaining stable.
What key financial indicators should I track each month?
Beyond the annual review, a few key indicators can help you manage your business on a daily basis:
Revenue invoiced versus revenue received: Distinguish what you have invoiced from what has actually been paid into your accounts.
Available cash level: Immediately accessible liquidity (balances of professional bank accounts and very short-term investments).
Customer payment terms: The average time it takes to collect your invoices. Extending this period represents a direct risk to your cash flow.
The break-even point: The minimum turnover to be achieved to cover all of your expenses (the break-even point designates the date on which this threshold is reached in the year).
What are the most common accounting mistakes to avoid?
Mixing personal and professional expenses: Paying for private purchases with the company account or neglecting to include actual expenses impairs the clarity of accounts and complicates justifications in the event of a tax audit.
Neglecting to keep supporting documents: Keeping missing or illegible documents jeopardizes the deduction of value-added tax and expenses. Remember that the tax authorities require documents and invoices to be kept for at least 10 years.
Confusing revenue and cash flow: Recording sales does not guarantee the availability of funds if your customers benefit from payment terms.
Waiting for the annual report to take stock: Analyzing your financial situation several months after the close of the financial year prevents you from reacting and correcting course in time.
When should you consult Ascend Accountant before making a strategic decision?
The Ascend Accountant team doesn't just record your invoices at year-end. It's important to discuss each major decision with us beforehand .
Before a major investment: To decide between equity financing, bank loan or leasing, and to plan the impact of depreciation on your taxation.
During a change of status or method of remuneration: To assess the relevance of a transition to a company, optimize the trade-off between remuneration and dividends, or to implement savings and benefit schemes (individual pension commitment for managers, meal vouchers, company bicycles).
In the event of hiring staff or using service providers: To simulate the overall cost of hiring a first employee or using a freelancer, and to check access to applicable social security contribution reductions.