Independent Contractor Profit And Loss Statement

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Working as an independent technical contractor, I’ve used a variety of accounting solutions to manage my business income and expenses. Early on, I used packaged software installed on a local PC (or network). More recently, I prefer the ease and accessibility of an online solution. But, during the initial stages of all my ventures, I usually began the process with a simple Excel spreadsheet.

I have a couple of goals in writing this article. One is to give you some information regarding a business Profit and Loss Statement (also called an Income Statement). The other goal, using your knowledge of an Income Statement, is to help you evaluate if this downloadable Independent Contractor Profit and Loss Statement template will help you as an independent contractor (or a self-employed business owner).

As a small business owner, there are a couple of advantages to using an Excel template that you should consider: simplicity and inexpensiveness. Assuming you have a basic understanding of Excel, it’s very easy to enter data into a spreadsheet. The rows and columns are on the screen in one window and you simply scroll to the location where you need to enter the data. No bouncing between multiple windows or understanding what software-specific buttons do. Also, if you already own the Microsoft Office suite (or need it for your business communication), then there is no extra expense to use an Excel template.

Now, you also need to realize that Excel isn’t the end-all solution. There are a couple of disadvantages to using Excel: limited export options and no accounting system integration. The spreadsheet is a “flat” file versus a “relational” database. The result of the single-file approach is that the spreadsheet data can only be exported through copy/paste functions or as a printout. Most accounting software programs will have a database as the backend for the data – allowing the data to be sorted and queried in almost unlimited formats (although, the software program usually limits the query options through it’s included, pre-programmed queries).

Also, going with a simple accounting spreadsheet will hinder any potential for that data to be integrated with accounting systems (such as payroll taxes, self-employed taxes, estimated taxes, and income tax return software). The spreadsheet will give you a gross income and net income summary that can be manually carried over to other accounting software (or given to your accountant) but won’t be able to automatically export to another system without a series of steps to get there.

Before we dive into the details of this template, let’s make sure we’re on the same page and cover a few accounting basics.

Accounting Basics

In helping you understand some basic accounting principles, let’s briefly review two main accounting reports: Balance Sheet and Income Statement.

Note: Most of the information in this section is a summary of an article by the U.S. Securities and Exchange Commission. The article is a quick read that I would recommend for a more detailed understanding of accounting reports.

Balance Sheet

The Balance Sheet “provides detailed information about a company’s assets, liabilities, and net worth” (U.S. Securities and Exchange Commission). A Balance Sheet represents a business’s point-in-time snapshot of the relationship between assets, liabilities, and net worth.

Note: You might also see “net worth” replaced with “shareholders equity.” It’s the same concept but the name varies based on whether the business has shareholders or owners.

The relationship between balance sheet elements is represented by the common accounting formula below:

ASSETS = LIABILITIES + NET WORTH

Assets: “Things that a company owns that have value.” (*1)

Liabilities: “Amounts of money that a company owes to others.” (*1)

Net Worth: “Money that would be left if a company sold all of its assets and paid off all of its liabilities.” (*1)

*1 (Definitions provided by U.S. Securities and Exchange Commission)

Income Statement

The Income Statement (also called the Profit and Loss Statement) is a “report that shows how much revenue a company earned over a specific time period…[it] also shows the costs and expenses associated with earning that revenue (U.S. Securities and Exchange Commission).” The bottom line for this statement is the business’s net income or net loss and can be displayed with the following formula:

INCOME - EXPENSES = NET INCOME

The definition of Income Statement elements is intuitive (income is money coming into the business and expenses are money leaving the business). But, as we start to look at the Independent Contractor Profit And Loss Statement template, you’ll see that the income section also has some items that count against the net income (i.e. Discounts and Cost of Goods Sold) – we’ll cover that later in this article.

So, you now have a basic comparison between a spreadsheet and packaged accounting software plus an understanding of basic accounting reports and terminology. Let’s move into the specifics of this spreadsheet to see if this downloadable Independent Contractor Profit And Loss Statement template will work well for you.

Note: I’m not an accounting or tax professional. My knowledge comes from over 20 years of self-employment and running my own corporation, a Bachelor’s degree in Business, and cited references. My experience is practical but not infallible and information in this article should not be taken as professional accounting or tax advice. I recommend that you use any knowledge you gain from this article as a starting point for your own research.

Quick Overview

The single worksheet in this template (called “Independent Contractor P&L”) has the typical Profit And Loss sections (Income and Expenses) that I mentioned above. Take a look at the Overview image to see a screenshot of the statement (the details of the Income and Expense sections are hidden to provide a clearer overview image).

Independent Contractor Profit Loss Statement Quick Overview

Overview

This template uses a basic spreadsheet design. The categories are on the left and the data entry occurs in the main body. The columns divide the data based on months and the running total for the year is on the far right. There are several “Tool Tips” (indicated by a red triangle in the top right corner of the cell) that give you some information on how to fill specific cells (one tip is visible in the Overview image).

How To Use

How to use the Independent Contractor P&L Statement Template, including setting up the spreadsheet, adding your own data, and understanding the statement.

Setting up

This spreadsheet has very little setup. Take a look at the Setup image and you should see the “Financial Year Beginning” field. Enter the start date for your financial statements – typically the same start date as your tax period. Unless there is a requirement in your specific state or country, I would recommend using January as your start date. Even if that means that your first year will only record a partial year, it’s generally the start to the tax cycle and it’s much easier if your tax cycle and accounting cycle match. The tooltip (yellow highlight) indicates the date format to use – the worksheet will autocorrect it to the Month Day, Year format.

Independent Contractor Profit Loss Statement Setup

Setup

Adding Data

Now, let’s add some sample profit and loss data so we can work with this spreadsheet. I’ve broken the data screenshots into income and expenses.

Income

Take a look at the Income image and enter the data as displayed (simply select the correct cell and type in the number). The items in red need to be added with a “-” sign before the number to indicate that it’s a negative number and needs to be subtracted. These negative numbers are what I referred to earlier as those “items that count against the net income.” The category (i.e. Revenue from Sales) is typically a net addition to the Income category. But, there are deductions (expenses) that are specifically related to the income item (i.e. Returns of Sale Items). Those “Returns” aren’t an expense because they wouldn’t be possible without the original “Sale.” So, they are just a deduction (or “lessening”) of the “Sales Revenue” – hence, the sub-title of “Less” that follows the income item.

Note: Don’t forget to add a “-” sign before the number in the “Less” categories; Otherwise, the “Less” entries will be added to your income instead of subtracted.

Now, take extra care as we move onto the “Cost of Goods Sold” section. Although this is similar to the “Less” items we discussed above, this Profit and Loss Statement template treats them as “positive” items that are totaled in the “Total Cost of Goods Sold” row and then subtracted in the “Gross Profit” row. (Some spreadsheets will list them as “Less: Cost of Goods Sold” and require them to be entered as a negative number similar to “Less: Returns” item that we discussed earlier.) So, even though these are deductions, make sure and enter them as “positive” numbers – the spreadsheet will subtract them.

Independent Contractor Profit Loss Statement Income

Income

Expenses

The Expenses image shows the numbers to enter in the lower section of the spreadsheet. Enter all expenses as positive numbers – the spreadsheet will total them and then subtract the total from “Gross Profit.”

Independent Contractor Profit Loss Statement Expenses

Expenses

Sample Profit and Loss

With the first quarter (January to March) of data entered into the spreadsheet, let’s take a look at the numbers to see what they mean. We can see from the “Net Profit” that we lost money in the first month (-5%; which is typical in a startup business) but we’re heading in the right direction because the next two months we made a significant increase in our “Net Profit” (43% and 50%). So, what do we do next? Well, the Profit Loss Statement can give you some insight into what might help your bottom line for the next quarter. Let’s look at some possibilities.

Income Observations

  • We can see from our revenue that our service is increasing ($2,500 to $4,000), product sales are decreasing ($1,000 to $250), and our “Revenue 3” is slowly increasing ($1,200 to $1,800) > We should consider focusing on service and become more of a service provider.
  • “Returns” were high the first month > Possibly due to dissatisfied customers or a misunderstanding of our product (maybe due to poor marketing and customer education). Also notice that our “Advertising Costs” were high this first month but lower in the months that we did lower sales; A take-away might be that we need to retarget our marketing to get fewer returns but keep our advertising above $50.
  • It looks like we are outsourcing the build of our products ($0 labor costs but $250 subcontractor costs). Also, our “Material” costs went down ($100 to $25). Why? Did we purchase too much material at first or are we making less product? If we’re making fewer products, then we need to determine why our subcontractor costs are the same each month.

Expense Observations

  • Our expenses were fairly consistent between months except for “Office Supplies” and “Equipment.” Those categories are typically high at first because you need to purchase the necessary supplies and equipment to make your business operational. It looks like the next two months were significantly lower but we should create a budget and plan for future purchases so we have the cash flow when we need it. This will help keep you from unexpectedly draining your bank accounts.

Printing

This sheet prints in portrait format by default. In order to print it on a single page, make sure the “Scaling” is set to “Fit Sheet on One Page.”

Summary

I’d like to stress the importance of seeking out a professional accountant to help you in your business ventures. There are a lot of accounting topics that we haven’t discussed in this article – such as how to pay self-employment tax, fill out tax forms, or file your tax return. Also, if you have employees, you’ll need to consider health insurance, payroll, payroll taxes, unemployment insurance, social security taxes, and worker’s compensation.

I hope this article helps get you started on your business venture. There’s always a risk in every venture, but it’s very satisfying to watch your business grow. And even more so when you keep good records and can understand why it’s growing.

Description

This P&L for small business owners allows you to enter multiple income categories and also contains a Cost of Goods Sold section. It includes a Gross and Net Profit % calculation.

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