P&L, or Profit and Loss statements are an essential part of running an auto repair shop. Any business with so many moving parts needs detailed account records and tracking documents to 1) determine whether the operation is actually making any money, 2) find any gaps in cash flow or discover any unnecessary expenses and 3) gain valuable insights to improve the operation overall. Most new businesses are a long process of trial and error before they reach profitability, and even then it’s important to keep reviewing operations and find out where you can improve.

Profit and Loss statements are a good place to start.

Keep in mind that a profit and loss statement isn’t the same as a balance sheet. A balance sheet looks at a longer period of time, while a P&L statement typically takes a specific short period (maybe one month or a quarter) and provides a snapshot of how the business is doing. This document can also be used for tax preparation.

Elements of a P&L Statement

Along with the basic company information and the specific period of time it covers, a P&L statement should include:

• Income or revenue for the time period in question. There might be deductions made to the income for returns or discounts. For an auto body shop this includes any payments received for repairs and from insurance companies. 
• Expenses: rent, operation costs, insurance, salaries, permit and licensing fees, loan payments, etc…
• Percentage of gross income for each expense (eg. rent = 30% of gross income for that time period)
• Profits: While there are many ways to view this number, profits most commonly refers to EBITDA (or earning before interest, taxes, depreciation and amortization). This is simply a more accurate way for your accountant to show you the earnings of the business minus expenses.
• Net Profit: after all of the above has been factored in, this is the money that is left in your pocket as the shop owner.

While it may not be the most fun to get into these details while running the business, a P&L statement can make all the difference in the success or failure of the shop. With a little bit of research and quality time with a calculator any shop owner can do this, however this is why you should retain a good accountant. They’ll be able to break this down for you and prepare the document for any business analysis or tax audit that might be required.

Creating regular P&L statements can also help you answer important questions about the business and help you determine your next growth strategy. For example:

• Can you afford to hire any new employees?
• Can you afford to move to a bigger garage or buy your own space?
• How will you plan your taxes?
• Is your current growth strategy effective?
• Why did you have one successful month vs. several slow months?
• Should you take on investors?
• Can you buy a second location?

All of these questions depend on what your goals are for your shop. When you opened the shop, you probably had a vision of how big and how successful you wanted it to be. Profit and loss statements help to make better decisions and stay focused on your business goals in the long run.