As an e-commerce business owner, you work hard to make sales and grow your business. However, it can be frustrating when you see that there’s not much money left at the end of the month, quarter, or year. You may not know where your money goes or understand your business financially. This is where a profit and loss statement (P&L) comes in handy.
In this blog post, we’ll discuss how to structure your P&L for e-commerce to gain clarity and profit. We’ll cover why this matters, the frustrations you may be experiencing, what we want, signs you’ve got this wrong, who this is for, and phase A: how to set up your P&L.
Why This Matters
A P&L is a financial statement that shows the revenue, costs, and expenses of a business over a period. It’s an essential tool for tracking your business’s financial performance and making informed decisions. A well-structured P&L provides clarity on your business’s profitability and helps you identify areas for improvement.
Frustrations You May Be Experiencing with Your P & L for e-Commerce
If you’re an e-commerce business owner, you may be experiencing frustrations such as working hard but not having much money left at the end of the month, quarter, or year. You may not know where your money goes or understand your business financially. This can lead to uncertainty and a lack of direction.
What We Want
We want clarity on our business’s financial performance, an overall business strategy, and to be guided by numbers. A well-structured P&L can help us achieve these goals.
Signs You’ve Got This Wrong
If you don’t have a profit analytics system, you won’t know what’s working and what’s not. If your numbers are inaccurate, you won’t be able to trust your P&L. If you don’t understand your P&L, you won’t be able to make informed decisions. If you don’t know what to do with the information you get, your P&L won’t be useful.
P & L for e-Commerce : Who This Is For
This blog post is for resellers using RA, OA, or wholesale sourcing, own brand sellers (private label/custom products), and Shopify or DTC store owners. If you’re an e-commerce business owner, you’re the financial manager of your business, and this post is for you.
Phase A: How to Set Up Your P&L
To set up your P&L, you need to be clear about the difference between tax accounting and management accounting. Tax accounting is for the IRS, and management accounting is for you. You need to have a bookkeeper or accountant who understands e-commerce and can set up your P&L correctly. Choose a bookkeeping system (e.g., Xero or Quickbooks) that is universally used and preferred by your accountant/bookkeeper. Use software to link your sales channels (e.g., Amazon) to your bookkeeping system (e.g., A2X or Linkmybooks). Set up your chart of accounts with your accountant, and have your bookkeeper get your accounts up to date historically. Then get your accounts up to date for the previous month by the 15th of the next month. Have them set up a P&L report that clearly shows direct vs. indirect costs (i.e., you get a clear gross margin).
In conclusion, a well-structured P&L is essential for gaining clarity and profitability in your e-commerce business. By following the steps outlined in this post, you can set up your P&L correctly and make informed decisions for the future of your business.