Every business’s success is measured by its profit and loss assessment. It is important to regularly analyze how much you earned to stay informed about your business’s growth.
Here we have gathered some information that will help you examine the profit and loss of your wholesale business. But before we start, let’s briefly discuss the meaning of a profit and loss statement.
What Is A Profit and Loss (P & L) Statement?
A profit and loss statement is a financial statement that summarizes the profit, cost, and expenses during a specific time i.e., a fiscal year or quarter. A profit and loss statement is also known by other names such as:
- Income statement
- Earning statement
- Operating statement
- Revenue statement
- Statement of financial performance
- Statement of operations
Analysis of A Profit and Loss Statement
The following methods can help you analyze your profit and loss statement:
- Sales or Source of Income
The best way to check the profitability of your business is through sales. If there were more sales in a particular month, you should note the reason for your increased sales. It will help you replicate it in the future.
You also need to check your sources of income. If there are multiple sources, shortlist the ones with the lowest profit margins. You should check if a source of income is consuming more time, investment, or energy while producing less revenue. Cutting and eliminating such a source would be a wise business decision.
Seasonality is simply referring to the fact that things change according to the season. It means that your sales may increase or decrease immensely in a particular season.
You need to check your product’s seasonality and measure its sales. Seasonality can be seen in many parts of a business besides sales and expenses.
- Cost of Goods Sold
The cost of sold products is another good way to analyze the profitability of your wholesale business. This cost should go up if the expenses of these products increase.
You need to make sure that the cost and expenses are sharing direct relativity. If it does not, you will need to make some changes.
Besides that, you should look for ways to reduce your expenses without affecting the profit. This way, you will be able to increase your profit margins. This is indeed an effective tip to increase the profitability of your wholesale business.
- Net Income
Net income is one of the most important parts of your wholesale business if you want to make it successful and profitable. It decides the sustainability of your business.
Your wholesale business might include products that are selling in one particular season only. We recommend selecting products that you can sell for the whole year. This will directly affect your net income, making your wholesale business more profitable and sustainable.
- Profit Margin
Your net income percentage is your profit margin. It is essential to calculate your profit margin to analyze the profitability of your wholesale business. After calculating your profit margin, you will be able to analyze if your revenue is going up or down.
Moreover, after calculating your profit margin, you can compare your profitability with your competitors. You can also search for the profit margins of other companies in your industry with the help of Google. This way, you will be able to shape your future business goals and move towards more a more established online wholesale business.
In A Nutshell
The profitability of every business is calculated by analyzing its revenue and loss. A profit and loss statement will help you examine the success of your business. We hope that the above methods and tips will help you analyze the profitability and sustainability of your business. Good luck and stay safe!