Understanding your accounts

This Understanding your accounts Info Guide explains the basics of three key financial tools – the Profit and Loss Account, the Budget Plan and the Cashflow Forecast.
 

Profit and Loss Account

What is a Profit and Loss Account?

Your Profit and Loss Account (P&L), also known as an Income & Expenditure Account, is a tool that shows your income less your expenses. It:

• calculates the profit or loss which your business has earned after allowing for all the expenses in running your business.
• records the transactions incurred by your business as a result of trading (the sales and purchases you make).

Some Visitor Attractions are not-for-profit operations. Profit in these instances may mean operational deficits, where running costs exceed income from visitors, which are funded by operational subventions from external sources in order to provide business continuity and to achieve break-even, ie no profit or loss.

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Profit and Loss Account: Attractions Example

This Profit and Loss Account example shows the various elements that are included when calculating operating 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 margins	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 seasn 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 diret 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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VAT
 

Where a business is registered for VAT, all income and cost figures in the Profit & Loss Account should be VAT-exclusive.  

Some Visitor Attractions are not-for-profit operations, which are not obliged to register for VAT. In these cases, VAT incurred on suppliers' invoices is not recoverable and must be included in the business costs in the Profit & Loss Account.

Where a not-for-profit operation includes a shop or restaurant, there may be scope for registering for VAT just in respect of such activities, thereby saving on some costs. Consult your Tax Adviser on the feasibility of this option.
 

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Budget Plan

Prepare an Annual Budget which reflects your financial plan for the coming year. Use it to compare sales and costs with budgeted amounts throughout the year, ideally on a month-by-month basis.

Use our Budget template to estimate your sales and costs for the year and work on your expected financial results

This Budget Tool 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 (P&L) against my budget?
 

Profit and 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. Admission fee	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 pruchasing policy has resulted in cost saving 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 that 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 offset 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)
 

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Cashflow Forecast

What is a Cashflow Forecast?
Why do I need to prepare a Cashflow Forecast?
How to monitor your cashflow position

What is a Cashflow Forecast?

A Cashflow Forecast is a spreadsheet into which you enter your anticipated cash inflows and cash outflows for the next three months or for the forthcoming year in order to calculate your cash balance which will be either positive or negative.

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.

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Why do I need to prepare a Cashflow Forecast?

A Cashflow Forecast can also be used to support grant and loan applications.

How to monitor your cashflow position

Keeping on top of your cashflow position requires ongoing monitoring from you or your book-keeper. Your Cashflow Forecast should be a living tool that is rolled on from one week or month to the next with actual information providing the new starting point to project forward.

Weekly / monthly Cashflow Forecast review

1. Compare the completed period’s forecast figures with the actual cash movements, and revise the cash balance into the next period.
2. Update upcoming periods’ forecasts in the light of more accurate estimates and changes in the business environment.
3. Add future periods so that it becomes a rolling forecast.

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

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