A profit and loss report can be generated by QuickBooks Online, MYOB and Xero and is based on the daily transactional data that is entered by the accounts staff.
There are several aspects of the profit and loss report which affect the viability of a business and they include total sales revenue, profit margin and expenses. In a competitive business market these things can be affected by the cost of advertising to compete as well as the profit margin on each product sold or services provided and you can see this play out when big box retailers compete against each other for the sale of commodity products.
Ultimately the profit and loss report is a financial report that allows business owners, managers and advisors understand the profitability of the business. It is also referred to as the Profit and Loss Statement.
It’s the end the of the financial year and for small businesses that means getting your affairs in order and buying things if you need them so you can claim the business expense this financial year.
Public companies that are listed on the ASX and other stock exchanges around the world report quarterly or half yearly and if you are a business owner or a share investor it’s important to understand how to read financial reports.
An interesting and relevant example is how Xero recently announced a big loss in their recent financial report but their share price sky-rocketed.
There’s more to profit and loss than meets the eye: Sometimes a company’s losses outweigh its revenue, but it doesn’t mean that company is in a bad position.
It’s not the most detailed financial report, probably because the company itself is still in its early stages — there’s actually a good argument against early stage ventures listing on the stock exchange, but that’s fodder for another post.
Revenue vs. losses for the period
The good news for BuyMyPlace is that its revenue increased 129 percent on the prior comparative period (PCP) to $1 million for H1 FY16/17, up from $133,518 in H1 FY15/16.
That’s an impressive leap in revenues in just 12 months, however, the BuyMyPlace financial results also reveal that the business made an even greater loss of $1.7 million, an increase of 1205 percent on the PCP.
A closer look at the report shows that, while the losses increased more than a thousand percent, it was due to an increased investment in marketing and advertising — principally on TV spots which totalled $517,723 compared with $98,578 the year prior.
This resulted in an 80 percent increase in the number of listings on the site (that is, the number of people using BuyMyPlace to sell their home), while order value increased 27 percent (people who were choosing more expensive packages).
BuyMyPlace is in good health
Although this business recorded losses that outweighed its revenue, BuyMyPlace is still in good financial health.
The report also shows that it has over $4 million in cash and cash equivalents, and only a little over $600,000 in liabilities. Although the liabilities have increased, it’s not due to taking on any additional debt — indeed, BuyMyPlace has paid down all of its loans — but was instead due to a 786 percent increase in staff salaries and, as a consequence, an increase in staff provisions and benefits — i.e., sick and annual leave.
Strategy for future growth
Not many homeowners actually want to sell their properties themselves — one estimate puts it at around 7 percent of the total number of homeowners. However, most people do want greater clarity around how the process works (including fees and commissions) — even if they still want assistance selling their homes.
Perhaps realising this, or perhaps in response to increased competition in the fixed-fee real estate services (see: Purplebricks, Settl, etc), BuyMyPlace also launched its own full service package, giving homeowners access to a real estate agent to sell their home for a fixed fee.
This will enable BuyMyPlace to capture a greater volume of homeowners, who are looking for a low cost alternative to sell their homes, but who don’t want to do it entirely themselves.
The other strategy for growth: increasing listing depth revenues.
At some point, BuyMyPlace will stop growing its market share. Or, in other words, the market of people looking for a low-cost option to sell their home will be tapped out.
But as a business, and as a publicly listed one, BuyMyPlace will need to keep growing its revenue, not merely keep it steady. It’ll need to do as other real estate services, such as REA Group and Domain have done, and increase listing revenue depths, by selling more expensive packages to customers.
BuyMyPlace will need to find additional value it can sell to customers, without necessarily increasing its own expenses to do so — or putting up its prices, which a business can usually only do once it’s cornered about 65 percent of the market, and BuyMyPlace is a long way off that yet.
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That’s a lesson for every business owner out there. And it’s something we cover in our online Business StartUp Course.
You’ll learn how to run and understand the financial reports for your business in our Xero and MYOB training courses. You can also learn about strategies for business growth in our Business StartUp Course. Or for more information, visit our website.
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Xero is a great bookkeeping program for tradies who are on the go and using their phones (or a tablet) all the time. From receipts scanning to creating quotes and invoices, receiving payments and keeping track of project costs.
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