How to Read a Profit and Loss Statement (Even If You Hate Numbers)
Understanding your Profit and Loss (P&L) Statement is one of the most powerful ways to take control of your business finances. But if you’re not a “numbers person,” staring at all those rows and columns can feel overwhelming. Don’t worry—we’re breaking it down in plain English, so even if you haven’t touched a spreadsheet since high school, you’ll walk away knowing exactly what to look for and why it matters.
What Is a Profit and Loss Statement?
A Profit and Loss Statement—also called an Income Statement—shows how much money your business made (revenue) and how much it spent (expenses) over a specific time period, like a month, quarter, or year. The end result tells you whether your business made a profit or took a loss.
Think of it as a snapshot of your business’s financial performance.
Why the P&L Is Important for Small Business Owners
✅ Helps you see if your business is actually making money
✅ Makes tax time easier and less stressful
✅ Identifies problem areas like overspending
✅ Shows trends in revenue and expenses over time
✅ Helps you price your services correctly
If you’re not reviewing your P&L regularly, you could be leaving money on the table or missing signs of financial trouble.
Breaking Down the Profit and Loss Statement: Line by Line
Let’s walk through the main sections of a typical P&L statement:
1. Revenue (a.k.a. Sales or Income)
This is the total amount of money your business brought in during the period.
Example: If you run a power washing business and completed 30 jobs in a month at $250 each, your revenue would be $7,500.
2. Cost of Goods Sold (COGS)
These are direct costs related to delivering your product or service—like materials or subcontractor labor.
Example: If you spent $1,200 on cleaning supplies and $500 on temporary labor, your COGS is $1,700.
3. Gross Profit
This is Revenue minus COGS.
Using our example: $7,500 revenue - $1,700 COGS = $5,800 Gross Profit
4. Operating Expenses
These are your business expenses not directly tied to a specific job or product. Think rent, software, insurance, and marketing.
Common expenses:
Business insurance
Software subscriptions (like QuickBooks Online)
Cell phone
Office supplies
Advertising
5. Net Profit (a.k.a. The Bottom Line)
This is your real profit after all expenses are deducted.
Formula: Gross Profit - Operating Expenses = Net Profit
If your Net Profit is a positive number—congrats, you made money! If it’s negative, it’s time to dig into why and make adjustments.
How to Use Your P&L to Make Smarter Business Decisions
Spot Trends: Compare monthly P&Ls to see if revenue is growing or if expenses are creeping up.
Trim the Fat: Look for unnecessary expenses or areas where you can cut back.
Set Financial Goals: Use your profit numbers to set income goals or prepare for a big purchase.
Talk to Lenders or Investors: A clear, up-to-date P&L is essential when applying for loans or bringing on partners.
How Often Should You Review Your P&L?
At least once a month. Seriously.
If you’re working with a bookkeeper (like us!), we’ll send this to you monthly—already organized, reconciled, and ready to review. No stress. No confusion. Just clear financial insights.
Final Thoughts
The Profit and Loss Statement doesn’t have to be scary. It’s one of the most valuable tools in your financial toolbox. Once you understand how to read it, you’ll gain the clarity and confidence to make better business decisions.
Need help understanding your numbers? At DPP Bookkeeping, LLC, we specialize in making your financials simple, clear, and useful—so you can focus on growing your business.
Contact us today or visit DPPBookkeeping.com to learn more.