Profit basics

This Profit basics Info Guide shows you how to use your Profit and Loss Account to calculate your financial results, and how to use other tools such as a Cashflow Forecast, a Budget Plan and a Break-even point Calculator to manage those financial results.

Profit

Profit is simply the difference between your business income and your business costs. If your income is greater than your costs you will make a profit, if not you will make a loss.
 
Many Visitor Attractions are not-for-profit operations, often run by community groups or local authorities for the local or common good, rather than for a financial motivation.
 
Whatever the business objective, the only route to survival for such operations may be by breaking even and making at least small surpluses for reinvestment and for repaying loans.

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Difference between cashflow and profit

Profit and cashflow differ in three key ways:

1. Activity
2. Timing
3. Non-cash items

1. Activity

2. Timing

3. Non-cash items

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Profit and Loss Account

In order to work out your financial results, you need to use a simple tool called a Profit and Loss Account (P&L). (Sometimes this is referred to as an Income & Expenditure Account.) Your Profit and Loss Account shows the value of sales made less itemised costs, the result being your net profit/loss or surplus/deficit. 

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How do I calculate profit?

This Profit and Loss Account example shows the various elements that are included when calculating profit.

Profit and Loss Account: Attractions Example
Income
1. Admission fees Income you take in from visitors	1. Admission fees	400,000
2. Shop / restaurant Shop / restaurant sales less purchases of food, goods for resale, etc. Where figure amounts are significant, shop and restaurant figures should be separated and their respective gross margins should be monitored	2. Shop / Restaurant
	Sales	160,000
	Cost of sales	80,000
	Gross margin	80,000
	Net income	480,000
	Less seasonal costs
3. Staff costs (casual, seasonal) Costs of additional pay when you increase your staff numbers in the high season and at other busy periods, eg guides and actors, as well as overtime payments for existing staff	3. Staff costs (casual, seasonal)	170,000
4. Other direct costs Costumes, laundry and other outgoings directly related to the service of your customers	4. Other direct costs	70,000
	Total seasonal costs	240,000
	Less annual fixed costs
5. Staff costs (full-time) Pay cost of the core staff needed to operate your attraction business throughout the year	5. Staff costs (full-time)	150,000
6. Overheads Costs incurred irrespective of the level of business done, eg rates, electricity, heating, insurance, security and maintenance	6. Overheads	50,000
7. Advertising and promotion Expense of promoting your Attraction, such as brochures, advertising and website maintenance	7. Advertising and promotion	20,000
8. Bank interest and charges Interest and charges on bank overdrafts, loans or equipment leases	8. Bank interest and charges	10,000
9. Depreciation Amount that the value of equipment or other assets reduces by in the year (calculated as a percentage of the original purchase price)	9. Depreciation	10,000
10. Other expenses Other outgoings not involved in the above headings	10. Other expenses	20,000
	Total annual fixed costs	260,000
11. Operating Profit / Loss Sum of Income less all direct and fixed costs. Profit is the amount that the business has left over for repayment of loans or investing in new equipment, furniture or building extensions. Loss is the amount that needs to be covered by subvention, or by profits in future periods.	11. Operating Profit / Loss	-20,000
12. Operating subvention A contractual financial contribution from a state agency, local authority or private benefactor to help the attraction maintain solvency	12. Operating subvention	20,000
	Surplus / deficit for period	-

 
How do I calculate profit? ( Word version)

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Tools to help you manage your financial results
 

You will find it easier to manage your financial results if you use these three tools:

• Cashflow Forecast
• Budget
• Know your break-even point 

Cashflow Forecast

Depending on the size of your business and its complexity, a Cashflow Forecast may be the only tool that you need to manage your profits.
 

 

• Cashflow forecasting
• Use our Excel template to create an Annual Cashflow Forecast
• Use our Excel template to create a three-month Cashflow Forecast

Budget

Prepare an Annual Budget Plan and use it to compare income and costs with budgeted amounts throughout the year, ideally on a month-by-month basis. This is additional to, but not a substitute for a Cashflow Forecast as cashflow, not profit, is ultimately the lifeblood of a business.
 

How do I compare my Profit and Loss Account against my Budget?

Prepare your Budget for the coming year, analysed by month or quarter. Do the following throughout the year:

1. Compare your Profit and Loss Account figures (ie your actual results) against your Budget estimates.

2. Identify where your Profit and Loss Account figures differ from your Budget estimates.

3. Take corrective action if necessary so that your financial target will be achieved.

Profit & Loss Account actual results compared against Budget: Attractions Example
		Actual	Budget	Variance	Variance
	Income			€	%
1. Admission fees Sales are €5,000 behind budget this month, mainly because of reduced customer numbers   Action: Need to run promotion next month and review effectiveness of our website	1. Admisson fees	30,000	35,000	-5,000	-14%
2. Shop / restaurant While sales have reduced in line with reduction in admissions, gross margins have also disimproved   Action: Need to review our mark-up policies	2. Shop / restaurant
	Sales	14,000	16,000	-2,000	-13%
	Cost of sales	8,000	8,000	0	0
	Gross margin	6,000	8,000	-2,000	-25%
	Net income	36,000	43,000	-7,000	-16%
	Less seasonal costs
3. Staff costs (casual, seasonal) Casual staff costs have reduced more than the % drop in income   Action: Identify scope for further savings in casual staff costs in future months	3. Staff costs (casual, seasonal)	12,000	15,000	3,000	20%
4. Other direct costs Stricter purchasing policy has resulted in cost savings this month	4. Other direct costs	5,000	6,000	1,000	17%
	Total seasonal costs	17,000	21,000	4,000	19%
	Less annual fixed costs
5. Staff cost (full-time) Pay reductions this month due to staff departures	5. Staff costs (full-time)	11,500	13,000	1,500	12%
6. Overheads Overheads are below budget by €1,000 due to changing electricity supplier	6. Overheads	4,000	5,000	1,000	20%
7. Advertising and promotion Advertising is over budget by €2,500 due to our main advertising campaign being brought forward   Action: Need to ensure we are getting value for money on this	7. Advertising and promotion	7,500	5,000	-2,500	-50%
8. Bank interest and charges Additional bank overdraft interest paid due to drop in cash income and increased loan repayments	8. Bank interest and charges	1,500	1,000	-500	-50%
9. Depreciation Depreciation is as budgeted - OK	9. Depreciation	1,000	1,000	0	0%
10. Other expenses Overspend not material	10. Other expenses	2,500	2,000	-500	-25%
	Total Annual Fixed Costs	28,000	27,000	-1,000	-4%
11. Operating Profit / Loss Net profit is greater than budgeted due mainly to drop in income offest by some savings in seasonal costs   Action: Need for urgent action to boost income and seek further cost savings	11. Operating Profit / Loss	-9,000	-5,000	-4,000	-8%
12. Operating Subvention Operating subvention  received as contracted Action: consider seeking financial contributions from additional source	12. Operating Subvention	2,000	2,000	0	0
	Surplus / deficit for period	-7,000	-3,000	-4,000	-133%

 
How do I compare my Profit and Loss Account (P&L) against my Budget? ( Word version)
 

Use our Budget template to estimate your income and costs for the year and work out your expected profit or loss

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