What Your Profit and Loss Statement Is Really Telling You

It’s More Than Just a Bunch of Numbers

You’ve probably seen your Profit and Loss (P&L) statement before maybe at year-end, during tax time, or emailed monthly by your bookkeeper. But if you’re not sure what it actually means, you’re not alone.

The P&L is more than just a summary of income and expenses. It’s a powerful tool that helps you understand how your business is performing, where your money is going, and what you need to do next.

In this post, I’ll break it down in plain English so you can:

• Read your P&L with confidence

• Spot red flags before they become problems

• Use it to make smarter business decisions

What Is a Profit and Loss Statement?

Also known as an income statement, your P&L shows your business revenue and expenses over a period of time usually monthly, quarterly, or annually. It’s a snapshot of the financial health of your business.

A typical P&L includes:

• Revenue: All the income your business brought in

• Cost of Goods Sold (COGS): Direct costs to deliver your product or service

• Gross Profit: Revenue minus COGS

• Operating Expenses: Overhead like rent, software, marketing, payroll, etc

• Net Profit (or Loss): What’s left after all expenses, your bottom line

What Can Your P&L Tell You?

1. Are You Actually Making a Profit?

Revenue might be flowing in, but if expenses are eating it up, you might still be losing money. Your net profit shows you the truth and whether your business is sustainable.

2. Are Your Costs in Check?

Spikes in your expenses (or COGS) can flag issues like price creep, overspending, or unnecessary subscriptions.

Tip: Review your expense categories monthly. If something looks off, dig in.

3. Is Your Pricing Strategy Working?

If your gross profit is consistently low, it could mean your pricing doesn’t cover your cost or you’re discounting too much.

Tip: Compare your revenue to COGS to see if you need to adjust rates or renegotiate supplier pricing.

4. Is Your Business Seasonal?

A month-to-month P&L lets you spot patterns in income and expenses great for planning slower months or staffing during busy ones.

Tip: Don’t just look at one month in isolation. Compare several to see trends.

How to Use Your P&L to Make Better Decisions

• Set goals based on past performance

• Forecast cash flow by tracking seasonal changes

• Adjust your marketing if sales are down

• Reevaluate spending if expenses are climbing

• Plan your owner’s pay based on profit, not just revenue

Your P&L gives you the data, it’s your job (or mine!) to turn that into action.

Don’t Just Read It — Understand It

Too many business owners get a monthly P&L they never open — or open it, feel confused, and close it again. But once you know how to read it, it becomes one of your most valuable tools.

And if your current P&L isn’t clear, isn’t timely, or doesn’t make sense? That’s a sign your bookkeeping system might need a refresh.

Get Support Reading the Numbers

If your P&L feels more confusing than helpful, let’s fix that. My Financial Foundations Paid Review helps you get clear on your current numbers, understand what they’re telling you, and find opportunities to improve your financial flow.

You don’t have to guess — you just need a guide.

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