First off, an accurate P&L is essential for determining your business’s tax liability. Repeat: an accurate P&L is essential for determining your business’s tax liability. Second, you may be required by law or association membership to keep a P&L statement. Third, you will probably need one for the bank if you want to get a loan. Fourth, an accurate P&L is essential for determining your business’s tax liability. Fifth, and potentially most important, a P&L is basically your guide for business decision-making—without one you’re just fumbling around blindly.
Think of your P&L as a health report card for your business. It shows the results of financial decisions and operations over time and is your best tool for making decisions in the future. So when it comes time to do things like repay a debt, open a second location or hire an employee, a review of your P&L will not only help you make the right decision but also plan for the future.