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Accounting Basics

Do I actually really need an income statement for my business?

Target performance income statement.jpeg

The short answer is, yes! No ifs, ands, or buts. You must have an income statement.

In my last blog, I talked about income statements including what they are and how they are used. Like many financial documents, I have clients who ask, “do I really need that?”

In October, we talked about whether or not you need a balance sheet and I told you the different scenarios, by business type, where a balance sheet is necessary. I’m here to tell you today that every business, no matter the type, size, or filing status, needs an income statement.

Here’s the thing. You already have an income statement whether you realize it or not. Do you have revenue? Do you have expenses? Voila! You have an income statement! Even if you’re a solo entrepreneur you must have income and expense information for your Schedule C on your tax return. Every business tax return, from single member LLC to a C Corporation starts with an income statement.

Here’s a question: are you keeping receipts and simply filling in this information once a year to satisfy the government? Or are you maintaining your financial records so that you can make healthy business decisions throughout the year? By maintaining an income statement, you can have updated information that will allow you to make decisions, compare time periods such as month to month or year to year, and provide valuable information to grow your business.

What an income statement does for your business

In my previous blog, I shared three major pieces of information that your income statement (also known as your profit and loss statement) provides you:

  • How much money you’re making. Are you meeting your income goals? Are you making a profit after you subtract your expenses?

  • Which expenses are possible to trim or cut out entirely to increase your profit margin.

  • Your best and worst selling products and services. This helps you determine what you might want to offer more or less of in your business.

Another reason to maintain an income statement is you might need to produce that information throughout the year. Yes, the IRS will want it when you file taxes, but banks, potential investors, and any other stakeholders might want to see information about the company’s net profit or loss.

Do you need help maintaining the appropriate financial records throughout the year? Or, perhaps you want help understanding what all the numbers mean for your business. Let me help you keep a clear, accurate and full picture of your business finances with my quality bookkeeping services. Contact me today!