 Balance sheet, profit and loss statement. What's the difference and why am I even talking about it? Well, first let's talk a little bit about what these things are and then we'll talk to the practical use of them. And first, I'm not an accountant. I highly recommend if you're starting a business or if you're running a business and you don't have an accountant, get an accountant. Where these numbers go on the profit and loss and balance sheet are important and something you should understand. Where they apply and where your money goes to the IRS or any state tax agency is profoundly important. And I highly recommend having a good accountant to make sure that you get that part right. So the balance sheet and profit and loss statement are the two of the three financial statements companies issue regularly. Financial statements provide ongoing record of a company's financial condition are used by creditors, market analysts and investors to evaluate a company's financial sonnus and growth through potential. The third financial statement is called the cash flow statement. And we're gonna really just talk about P&L, profit and loss and balance sheet. Key takeaways, a balance sheet reports companies' assets, liabilities, shareholder equities, specific point in time. The balance sheet provides both investors and creditors a snapshot of how effectively a company's management is using its resources. A profit and loss statement summarizes the revenue's cost expenses incurred during a specific period of time. The P&L statement provides information about whether a company can generate profit by increasing revenue, reducing costs or both. And this is what I wanted to kind of dig into. The whole system of understanding that and understanding this and I have it listed over here on Investopedia, I'll leave a link below. There's plenty of reading you can do on here. Great if you can find some good books on it. I don't have any particular recommendations for accounting books, but understanding business economics I think is a key important factor in your company. And let me talk about why. Been running a company for 16 years and I like sharing some of these insights I have to hopefully help people avoid some of the hurdles that you may run into with your company and making sure you understand it's at the beginning like I wish I had would have probably resulted in some better decision makings. Now these tools have been around for a long time and ledgers and et cetera, et cetera. And the software used to produce these is not particularly important as long as it's something you're comfortable with and you understand how the numbers get generated and understand how to read them. Back to the point in here. I have a friend who was making, well, loosely call him a friend, Queen's, another business owner. He wasn't very good at business, but he did build a company that very quickly was producing over $3 million a year in revenue. And before you think, wow, that's really cool for a company that only was open for a few years. And I said only open for a few years because there's a bad side to the story. He wasn't making any money. He was certainly having revenues come in, but they were leaving at a rate that exceeded the amount coming in. And so whether your company makes a billion dollars or a million dollars or only $100,000 a year, it's important that there's money leftover that profit and loss. And he was all loss, no profit. Now that works over time when you have a loan. So the business starts out with a loan over in the balance sheet going, hey, here's all this and we have some money in the bank. We've got a million dollars in the bank so we can start paying people, start getting some sales teams and mobilized and we're gonna get them all going over here. But at some point, even though they're generating revenues, their revenue has to do two things. One, compensate them. So you have to have enough money left over to compensate your sales staff, your technical staff or whatever the business model you're working under, whether that's machinery, all those different material costs that go into running a business and being able to understand where your break-even points are. Because even if they're making money, remember that loan you got? Someone probably wants that money back. Therefore, you have to figure out how to pay that loan and then you can start looking at it from an economic standpoint and go, okay, one is my break-even. When that loan's paid off, I'll be more profitable and can I survive long enough at so many losses before this becomes a real problem. And this is all about when you're running a business, these are some of the numbers I think that are critical to understand. So I did the whole thing of video. I hate my job is not a business plan and people ask me, how do you get started in business? And I love helping people. I like seeing people succeed. I like when people don't have to make mistakes that I made because I just didn't have the knowledge out there. So that's one of the reasons I throw this knowledge out there. I wasn't a YouTube when I started my company back in 2003 and I know I probably could have sure read more books but YouTube's way easier and I like watching YouTube videos myself so I was like making YouTube videos or just videos in general about these topics. Back to profits and losses. I'm staring at income and expenses for this year. So my profit and loss sheet for this year. I'll run down the numbers real quick here. So in January, we made 27,000. So January was good, but then it goes bad. 35,000 in losses for February. 53,000 in profits on March, but then 18,000 in losses in April. 7,000 losses in May. 9,000 losses in June. And July was another 8,000 in losses. But don't worry, we came back strong in August and $15,000 in gains. And the overall, if you're not running the numbers here that puts us at a total of 16,000 in profits for the year. Now this has nothing to do with the revenue that comes in. A million dollars, 10 million dollars doesn't matter. Like I said, in the end with any business, it's about is there any money left over? I know people who don't seemingly make a lot of money when it comes to the revenue, but their profit, the margin they make is really good. And this is why it's a really important numbers to understand. And when I'm running down the expense, basically you take all the revenues in. And I break them out in different categories due to things like YouTube, due to the retail side of our business, the MSP side of our business. We break out all the revenues because this is how you start developing your costing model so you understand where those expenses. Cause then you create expense categories. For example, in the MSP space, the managers providing we do, there is a cost model for that. We know how much money comes in from the managed recurring revenue. We know how much money goes out in terms of actual hard costs related to the software that we use, the license fees that we pay for all that software. And then I know how many hours that my staff spend on that project so I can calculate roughly theirs. And I say roughly because there's, sometimes you require more hours, some months you require less hours. It's kind of driven by Windows updates. Yes, Windows updates actually affect my profit and loss statement. Isn't that fun? Same with Outlook. Outlook is a whole another problem where a tenant is an update to Microsoft Office. That actually can affect the bottom line because if you guarantee so many support hours in your contract, when those support hours don't get used, you're more profitable versus when the support hours are used, you're less profitable because now they had employees that would be dedicated to that particular tax versus other tasks that may have generated more revenue that had to get delayed or that we outsourced to a contractor instead. And now you can see how this can be very complicated but that's what I also have is sections for contractors and this is how you start tracking the job costs. Now, the reason that we have more wildly swinging profits and loss than maybe a company that has just MSP work is because we do a lot of contract work. We do project work and we do a lot of infrastructure work. Infrastructure work has a higher material cost. Those higher material costs, sometimes even though we ask for deposits and we do get deposits and partials down on this, the outlay of capital sometimes is higher because of contractors, equipment rental and materials overall than we will have down or the payment delay at those. You have to be expecting that, especially when the contracting business on the payment delay. Now that is where you have to make sure you understand your margins because if your margins are not high enough, then you will die on the payment delay, especially if you're working off loans. In the earlier start of your business, unless you are cash flush, which majority of startups are not unless they get some wonderful VC capital. But by the way, that comes with strings attached so it's not necessarily the awesome, amazing way to do it but having that capital in the bank, so I can say, all right, we're gonna take on a $80,000, $100,000 infrastructure project. I'm gonna get $40,000 or $50,000 down but by the time I'm done and everything's completed and the contractors I may have hired to do aspects of the job and the equipment rentals, I have a good margin left over provided they pay me in time and I will tell you at this very moment, I have a job finished in April and it is September something, September 16th of 2019 and I sent the bill on like April 2nd of 2019 and I'm still not 100% paid on that project. If I was having a loan that would cut into the losses but this is why you set the margin slightly higher for the prediction that there will be a problem with some of the payments. You're hoping there's not and sometimes there is, sometimes there isn't, it kinda depends on it but those up and downs, that risk I take by doing those projects ultimately are very profitable so at the end of it all we actually end up with a lot more money left over and I'm gonna leave some links here and I highly recommend if you started a business you've already overcome the other steps of having a plan to make money, having a sales process but you wanna know and this is one of the reasons I'm making this video, the question comes up what are some of the books I should read or what are some of the things I should understand? I'm gonna tell you, understanding your balance sheet, understanding your profit law statement are immensely helpful, they are to me so I know where we are, I know how much money's in the bank at a given time I know it's on my balance sheet in terms of assets so I can look at a project and determine very quickly is this a project I wanna take on? If I know that project has a risk of not paying for 60, 90 days, I can calculate that in theirs I know what my money's worth but if you have a loan you'll really have to think about that is it worth your time for the profit at the end of it? And this is being able to speak to your numbers is at any given moment, any given time, it helps a lot because I don't know, that phone might ring and the phone will ring and say hey, I got this project, can you take it on? If I didn't know these numbers I wouldn't be able to say that also the other advantage knowing your numbers let's say I have a massive opportunity, it comes to me and I should be able to print these out at any given moment which I can walk over to the bank and say I need money here's the project, here's how it's laid out here's the history of how we've handled it before with your loan good banker we would love to at a low interest rate get some money to fund this project so I can take a loss for these next couple months with the promise of payback within this amount of time and like I said, these are just important aspects that I wish I knew earlier out of my business and the access to information the amount of information online through places like this side of head pull up Investopedia you can spend just hours reading and get an entire amazing understanding of all these concepts and then apply them to practical use like I have here so you can get a better understanding of your profit loss and like I said, these are things that I think are key to running a business they're key to understand unless you are a large enough company where you have someone who does the numbers and you're this divisionary on top that's cool and maybe if you run that big of a company you're probably not sitting around watching my videos but if you're like me a small business with a handful of employees trying to start out or getting started and you're wondering what do I need to have a good understanding of these are definitely strong tools to understand and if you start early if you start early in your business model taking the time to grasp and understand these topics it's much much better later because understanding it now and getting a grasp on it before I've just met some business owners who think they're making money they're not sure they seem to have a lot of people busy all the time but they haven't really taken the time to organize their business it gets harder once it's out of control you may be making all kinds of money when it's out of control but chaos isn't good and it's much better to understand and get a grasp on your numbers so even if you're a one person starting out and I've been doing this for a long time it's put it all in place now put it in place when you're getting started your life is that much easier and if that opportunity ever comes being able to speak to numbers when the bank's there gets you through that conversation with a lot less and things like that that's important, Barby will speak concise to it so anyways get reading I'll leave a link to Envistopedia and good luck best of luck and I wish you guys the best and thank you for making it to the end of the video if you liked this video please give it a thumbs up if you'd like to see more content from the channel hit the subscribe button and hit the bell icon if you like YouTube to notify you when new videos come out if you'd like to hire us head over to laurancesystems.com fill out our contact page and let us know what we can help you with and what projects you'd like us to work together on if you want to carry on the discussion head over to forums.laurancesystems.com where we can carry on the discussion about this video, other videos or other tech topics in general even suggestions for new videos they're accepted right there on our forums which are free also if you'd like to help the channel in other ways head over to our affiliate page we have a lot of great tech offers for you and once again thanks for watching and see you next time