I've been a CPA for nearly 20 years - serving private small business and real estate the entire time. I take the lessons learned in serving and now running a small business and share them here. For business owners, investors, and advisors looking to lower their cost of capital, subscribe for delivery straight to your inbox ๐ Also on YouTube at PlugAccountingandTax!
Weaponize Your P&L ๐คบ
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Every month, my firm sends out dozens of financial statements to our clients who are too small to have their own full-time accountant. Think revenue of $1 million to $5 million. Of those we send out, maybe 50% are reviewed in detail - the other 50% are ignored until the tax return when taxes are due on that income. ๐ต Of the 50% of financials that are opened, even a smaller fraction are used to their full potential. If you're a DIY founder, owner, or operator - today is all about how to use your Profit and Loss (P&L, income statement) as a weapon โ๏ธ in your business. Know What Actually Makes You MoneyNot all revenue is created equal. Some products or services might bring in big sales numbers but cost you more to deliver. Others look small but drop straight to your bottom line. โฌ๏ธ Your P&L should break out revenue by product line or service type. This lets you see which parts of your business are winners and which are just keeping you busy. I've seen clients discover that 20% of their offerings generate 80% of their profit. Once you know that, you double down on what works and cut what doesn't. ๐บ Stop the BleedingEvery business leaks money. ๐ง The question is where and how much. Warren Buffett and Charlie Munger ๐ด๐จโ๐ฆณ built their fortune on businesses that are cost conscious. Not cheap. Conscious. They knew where every dollar went and whether it was worth it. Your P&L should make waste obvious. ๐จ When you group similar expenses together, patterns emerge. You'll spot the software subscription you forgot to cancel. The vendor charging 20% more than they quoted. The cost that doubled without anyone noticing. Small leaks sink ships. A $200 monthly expense you don't need is $2,400 a year. That's real money that could go toward growth, hiring, or your self-insurance cash fund. Make Decisions FasterA good chart of accounts makes your P&L readable. ๐ A bad one makes it useless. When your P&L groups expenses logically, you can answer questions fast. How much did we spend on marketing last quarter? What's our cost per customer acquisition? Are we spending more on technology than last year? Speed matters. The faster you can pull these numbers, the faster you know your break-even, the faster you can make decisions. โฑ๏ธ And in business, fast decisions with good data beat slow decisions with perfect data. Get Better Tax AdviceYour tax pro can only find tax savings in expenses they can see clearly. ๐ When your chart of accounts separates business meals, travel, home office expenses, and equipment purchases into clear categories, your tax preparer can identify every deduction you're entitled to. โผ๏ธ I've seen businesses miss out on thousands in tax credits because their bookkeeping was messy. Research and development credits, energy incentives, and other opportunities get lost when everything is dumped into generic expense categories. Clean books equal lower taxes. It's that simple. Build Budgets That WorkYou can't budget for the future if you don't understand the past. ๐ฎ A well-organized P&L gives you the foundation for forecasting. You can see seasonal patterns. You can identify which costs are fixed and which scale with revenue. You can model what happens if sales grow 20% or drop 10%. Most business owners budget by guessing. They look at last year and add 10%. But when your P&L is detailed and accurate, you can build budgets based on real drivers. ๐ธ How many units do we need to sell? When do we need to hire? When can I be rich? These aren't theoretical questions. They determine whether your business survives the next downturn or runs out of cash during growth. The TakeawayBetter financials equal better business. Clear revenue categories. Logical expense groupings. Enough detail to make decisions but not so much that you drown in data. If you're still looking at a P&L that's just a long list of accounts in alphabetical order, you're flying blind. ๐จโ๐ฆฏ Fix that first. Everything else gets easier. The numbers are already there. You just need to organize them in a way that helps you run your business better. At the end of the day, the goal isn't just to know what you made. It's to make more of it. ๐ซก ๐ฅ Hottest Finance Posts This Week ๐ฅ
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The Plug [Newsletter]
I've been a CPA for nearly 20 years - serving private small business and real estate the entire time. I take the lessons learned in serving and now running a small business and share them here. For business owners, investors, and advisors looking to lower their cost of capital, subscribe for delivery straight to your inbox ๐ Also on YouTube at PlugAccountingandTax!
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