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How to Read a P&L Statement

  • Writer: Miranda Kishel
    Miranda Kishel
  • Aug 22
  • 2 min read
P&L Statement

Understanding your Profit and Loss (P&L) Statement—also called an Income Statement—is one of the most practical skills you can develop as a small business owner. This financial report is more than just numbers on a page: it tells the story of how money flows in and out of your business and whether your hard work is truly profitable.


Why Understanding a P&L Statement Matters


  • Profitability check: Are you actually making money after expenses?

  • Decision-making tool: Should you hire, expand, or cut costs?

  • Compliance requirement: Lenders, investors, and even the IRS expect you to know your numbers.

As the U.S. Small Business Administration notes, “Monitoring your financial statements regularly helps you understand your business’s performance and plan for the future”【SBA.gov†source】.


Step-by-Step Instructions


  1. Start with Revenue (Top Line)

    • Look at total sales or income.

    • Ask: Is revenue growing compared to last month or year?


  2. Review Cost of Goods Sold (COGS)

    • Direct costs tied to producing goods/services.

    • Subtract COGS from revenue to get Gross Profit.

  3. Check Operating Expenses

    • Overhead like rent, utilities, payroll, marketing.

    • Keep an eye on which expenses are rising fastest.

  4. Look at Operating Income

    • Gross Profit – Operating Expenses = Operating Income.

    • This shows how much profit comes from actual operations.

  5. Factor in Other Income/Expenses

    • Interest earned, one-time gains, or unusual costs.

  6. Calculate Net Income (Bottom Line)

    • Net Income = Revenue – All Expenses.

    • This is what’s left for you, the owner.

Helpful Tools or Templates

  • Bookkeeping Software: QuickBooks, Xero, or Wave can auto-generate a P&L Statement.

  • Custom Reports & Support: Value Planning Reports bookkeeping & payroll services provide templates and hands-on help tailored for small businesses.

  • Spreadsheet Templates: Free versions are available on SBA.gov and SCORE.

Pro Tips from Experience

  • Compare Periods, Not Just One Month: Look at trends across 3–6 months.

  • Use Percentages: Express expenses as a % of revenue to spot red flags quickly.

  • Drill Down on “Other Expenses”: This category often hides overlooked costs.

  • Match P&L to Cash Flow: Profit on paper doesn’t always mean cash in the bank.

⚠️ Common Pitfalls (Callout Box)

  • Ignoring small recurring expenses that add up.

  • Confusing one-time revenue (e.g., a big client prepayment) with regular sales.

  • Failing to separate personal and business expenses.

  • Looking at the P&L only at tax time instead of monthly.

Final Checklist

Before you close your books each month, review:


  •  Revenue: trending up, down, or flat?

  •  Gross Profit Margin: sustainable?

  •  Biggest expense categories: under control?

  •  Net Income: positive and aligned with goals?

  •  Notes on anomalies: one-time items explained?

Bottom Line: Reading your P&L Statement doesn’t have to be overwhelming. With a structured approach, the right tools, and a bit of practice, you’ll gain confidence in your financial decision-making and keep your business on track.

Need help setting up or reviewing your P&L? Click here to explore bookkeeping and payroll support.

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