Let’s be honest—when most small business owners hear “Profit and Loss Report,” their eyes glaze over. But here’s the thing: your P&L (also called your Income Statement) is one of the most powerful tools in your business. And I promise, it doesn’t have to be overwhelming.
This report tells the story of your business—what you’re bringing in, what you’re spending, and what’s left over. It’s how you know if you’re actually profitable or just busy.
So let’s break it down in plain English.
Start at the Top: Income
This section shows your total revenue—all the money coming into your business before any expenses are taken out. If you offer more than one service or sell products too, you might see each income stream broken out separately. That’s helpful for spotting what’s bringing in the most cash.
What to look for: Are your monthly income numbers growing? Are some services making more than others? Do you notice slow or busy seasons?
Next Up: Cost of Goods Sold (COGS)
Not all businesses have this section, but if you do, it shows the direct costs of delivering your product or service—like materials, subcontractors, or production costs.
What to look for: Are these costs too high compared to your income? Your gross profit (income minus COGS) gives you a clearer picture of what you’re actually keeping before overhead expenses.
Then: Operating Expenses
This is where most of your business spending shows up—software, rent, advertising, insurance, office supplies, and more.
What to look for: Are there any categories that surprise you? Is anything higher than expected? Are there subscriptions you forgot about or costs that could be trimmed?
Bottom Line: Net Profit (or Loss)
This is the number everyone wants to know: how much you made (or lost) after all the expenses are paid.
What to look for: Are you consistently profitable? If not, are expenses too high, or does income need to increase? This is the number that tells you if your business model is working—or needs tweaking.
Bonus Tips:
- Compare month to month or year to year. Trends matter more than one random month.
- Don’t panic over one bad month. Look at the big picture.
- Work with a bookkeeper who explains things in human language (hi, that’s me!).
Bottom Line:
Your Profit and Loss report isn’t just “for your accountant.” It’s for you. Once you understand it, you’ll feel more in control of your business—and that’s a game changer.
Need help making sense of your numbers? Let’s chat. I’ll walk you through it step by step (no finance degree required).