What is a profit and loss budget

A profit and loss budget—also called an operating budget—is an attempt to estimate your expenses and income over a period of time. 

A profit and loss budget can also be called a profit and loss budget or P&L budget. A profit and loss budget helps you see if your business is making money, and gives you an idea of how much you have to pay in taxes.

You should have a profit and loss budget and a cash flow budget in your business. 

How to make a profit and loss budget 

Making a profit budget can seem daunting at first, but it’s really all about  getting an overview of your business—and you really should have that anyway to ensure that you’re operating efficiently and that you stay on track to meet your business goals. 

This is how to set up a budget:

1. Review your business goals and your business plan. This will help you figure out what kind of profit you need to be making. 
2. Decide what period you want the budget to cover, usually a profit budget covers a calendar year or fiscal year, but you can also set it up to cover a shorter time period if you need that. 
3. Identify your fixed costs and variable costs. Fixed costs are costs that you always have, such as rent costs or phone plans. Variable costs are costs that vary depending on how many goods you’re producing or how many services you deliver, such as the cost of shipping and raw materials. Make sure to budget for unforeseen expenses too. 
4. Estimate your income for the period. If this is your first year of running a business, you can look at competitors’ annual reports to see their profit and loss statement for the past year. You can also ask industry experts or an accountant for help.

Then you’ll be able to see if you’re earning or losing money. If you’re earning money is it enough to meet your business goals? You can always through the budget to see where you’re spending your money, and whether you can cut costs. 

Review and update your budgets

Once the financial period is over, you should review your budget to see if aligned with the actual profit and loss. 

Your profit and loss statement is a great place to start. See if it aligns with your budget, and if not, where the discrepancies are. 

Then you should set up a budget for the next financial period, with the new knowledge in mind.