The profit and loss (P&L) statement is a very important document that lists in a very logical order for you, the martial arts business owner, the income and expenses of your business.
The first thing that the P&L needs to show is your sales, cost of sales and gross profit. That is, the total income derived from sales less the cost of these sales leaving the gross profit. The sales includes all money you have received through your POS from the sale of goods and services. In a martial arts business this includes training fees, uniforms and equipment sales and sales from food and drinks. The cost of sales is exactly what it says – the money you had to spend in order to purchase these items to sell. Cost of sales applies only to goods that you sell, for example uniforms and kick paddles. You may purchase the kick paddle for $15 and sell it for $45. The cost of sale in this instance is $15. And finally, the gross profit is the total sales less the cost of sales. Gross profit does not have the day to day expenses like electricity, motor vehicle, postage and so on taken out at this stage.
The next area of the P&L is the expenses, and this is where the day to day expenses are listed. Some items you may pay for on a daily basis, whilst other items are paid for on a weekly and monthly basis. The things here should be grouped under subheadings like general and administration expenses, advertising, motor vehicle, operating expenses, occupancy costs, and employment expenses.
The gross profit described above less the total expenses gives the nett profit (or loss). This final figure is very important to know each week. It tells you if you have spent more than you have earned, which is a position no one in a martial arts business wants to be in. Many business owners leave this to prepare every three months when their Business Activity Statement (BAS) is due to the Australian Taxation Office, however this is very poor business practice. A few businesses do this monthly, and that is still too infrequent. The reason for this is that you need to be able to track on a weekly basis how your sales and expenses are traveling to make sure you do not get to the end of the month and discover that you have overspent and gone way over budget. It may take months to haul in such a mistake and, as history shows, some businesses never recover from this kind of thing.
In order to produce this profit and loss statement you need to enter the information weekly, and I recommend that this be done on a set day each week, just as your accounts must be paid on a set day each week, and not on an adhoc or random basis. You may employ a bookkeeper to enter the income and expenditure or you may in fact do this yourself. I recommend doing this yourself at first as you then learn how a profit and loss comes together. Once you income improves from your martial business you may then choose to hand the task over to a paid or volunteer bookkeeper
The primary task of the bookkeeper, apart from entering the income and expenses into the accounting package, is to reconcile the bank statements. That is, perform a formal auditable reconciliation of the expenses as shown in your tax invoices against the bank statements. Remember, all accounts must be paid from your bank account so there is a clearly recognisable and auditable path for all income and expenditure. This is a “not negotiable” when it comes to running a martial arts business.