What is an Income Statement & Why is It Important For Your Business?

Knowing that your business is doing well is fine, but you need to look at the actual figures of how profitable your business is. Only then you can say that your business is up for something. In many cases, this is how we find an income statement very significant for business development. Thus, we thought digging more about the income statement, and its importance will help many business owners and aspirants.

Strikingly loves the idea of growth and development in each field where our users take us. In website building, perhaps the most interesting part is having real-time updates and stuff like that to give you a quick glance at how it is working. This is how we would like to relate it to the income statement for your business. Although running your own business website makes your life easier, instead of going through a series of reports or meetings about business progress, we emphasize the importance of knowing and getting into the numbers of how profitable your business is. While automated reports are brilliant, being more hands-on and going the old-school way is more important to prepare an income statement for your business. Here we’ll give you a clear understanding of ‘what is an income statement’, why it is essential, how to create one, and of course, we’ll give you some thoughts about running your own business website in the end.

What is an Income Statement?

According to an article from Zoho’s - Books, an income statement is a financial statement that shows you the company’s income and expenditures. Whether a company is making a profit or loss for a given period, this is the best way to break down the company’s revenues and resources. The income statement, along with the balance sheet and cash flow statement, as it is referred to in common, helps you understand the financial status of your business. Thus, making it easier to see which area should be addressed or improved in the process. It is also known as a profit and loss statement, statement of operation, financial result or income, or earnings statement. These terms make sense for the very purpose of an income statement.

Image taken from DMC website

**

Why is It Important to Prepare an Income Statement?**

The importance of an income statement is evident in businesses regardless of size. Many business owners who have tested how effective it is to prepare an income statement at company meetings or board discussions understand that these reports can determine the direction of the company. Hence, they develop smart strategies and put great effort into increasing revenues. We think this is the significant importance of knowing the numbers or the figures of how much profit your company makes. It gives you a clear hint on what seems odd in the process while ensuring some good points on what path to take. As to its purpose, the income statement aims to inform the management or the person in charge about the company’s health in terms of income. Here are some of the things that the income statement informs.

1. Determine Business Expenses - It is important to determine existing and future expenses. Thus, an income statement should include the costs of rental, employee salary, production materials, and the smallest expenses to maintain the facility. Determining these expenses will give the management further knowledge of how much percentage of the income goes to these costs. Eventually, they can consider these future expenses to develop strategic plans on how to increase revenues. This is the best way to be prepared and think ahead of time. You better be prepared with a smart plan when you know how much money goes out in a given period.

2. Reports Done Frequently - Some financial statements are created annually while others are done quarterly or even monthly. This way, business owners and their investors can develop the closest and effective approach in dealing with business. These income statement reports allow the proper department to fix issues or possible problems that might arise. This is also applicable to small businesses, not just the corporate ones with board meetings and stuff alike. Many startup founders rely on this report as if their whole business life depends on it. And it’s actually true. When you know how your business is going on, and you’ve got a black and white income statement handy, you can never go wrong. Every decision made in business should be based on facts and not on mere estimates only. No matter how often you prepare an income statement, it will surely help you achieve a deep understanding of the company you run.

3. Overall Analysis - How good it is to have an overview of the status of your company? It is simply amazing to have things ready, as you can see on the monthly reports. Having an overall analysis of your own company is the key to your success as a business owner. Someone who ignores details may lose the efforts of the people building a strong and profitable company. As the head of the team, you’ve got to pay attention to small and big details. An overall analysis with a supporting team to guide you and, of course, the right tools to make it happen, just like how we do it here at Strikingly, your business is way too far and better than the others.

Image taken from [_Lever & Bloom](http://www.leverandbloomcoffee.co.uk/) website

How to Create an Income Statement For Your Business?

In creating an income statement, you have to consider the things that should be included in the report. You have to focus on the purpose of why and whom you are making the financial statement for.

While most corporate businesses use an income statement as an internal copy for discussion, the small ones sometimes use an income statement as a requirement for expansion or financial assistance application. Thus, most formats are presented in a table or a summary of information. Whether internal or external use, you have to keep in mind that listing down the critical information is a must. Here are some of the major components you need to put in your income statement. With this information, you would be able to present a clear and concise report.

What Should be Included in the Income Statement?

• Sales or Revenue - As we mentioned, the importance of knowing how profitable your company is, clearly state in the report. How much money your company is making in a certain period. This way, you can compare it from previous monthly reports and determine what’s affecting the sales.
• Gross Profit - Based on Zoho’s article, gross profit is defined as net sales minus the total cost of goods sold in your business. It is what remains after you get all your expenses set aside.
• Expenses - The cost of raw materials, equipment, employee wages, suppliers, and office maintenance are some examples of business expenses. It is important to include this in your report to help determine if cost-cutting is necessary or not.
• Administrative Expenses - While mere expenses can be related to anything that the company has to pay for, administrative expenses are fixed marketing costs. These are the main expenses that the company is incurring as a whole rather than just every department’s expenses. Examples of these are salaries, travel expenses, rental fees, customer care plan, and stuff that exist regardless of how much sales are gained or lost.
• Net Income - Net income is the company earnings after you deduct business expenses. To calculate it, you need to get the difference of total expense from total revenue.
• Advertising Expenses - This is what you pay for print ads and media exposure of your company to gain more clients and sales. Press releases, commercials, and even your business website and newsletters can be included in online promotion.

Final Thoughts

There are so many important reasons why you need to prepare an income statement for your business. But, one thing is for sure. Your keen understanding of your business matters from production to expansion and the smallest details to the most important asset. Keeping your mind aware of these things will help you manage your business on a higher level.

Here at Strikingly, we love to share so many valuable ideas on how to run a business online, create quality stuff, or even turn your hobby to profit. But, we know exactly that some things may work or not work for others. There is nothing like one size fits all. You are aware of your business potentials, and you probably have personalized strategies that are proven to be effective. The thing about going back to basics and trying out the old ways, just like when you prepare multiple copies of the income statement for the next board meeting, is that it’s tested to work out great. Don’t be afraid to try out the new approach but never let go of the old yet effective ways to win your business goals. We have multiple users across the globe, and we always find it interesting to work with these strategic and innovative minds. While they test out new business strategies, they don’t forget the good old ways that worked out well. With Strikingly, we combine innovation and creativity in terms of web services and marketing tools. Many business owners find it amazing to work with our intuitive team of experts. You can head on to our homepage and try for yourself.