What Your Profit & Loss Statement Should Really Tell You
If you have ever stared at your Profit and Loss Statement (P&L) and thought, “What am I actually looking at?”, you are not alone.
Many freelancers, side hustlers, and small business owners struggle with understanding profit and loss statement details, yet this simple document can give you a crystal-clear picture of your business’s financial health.
Let’s break it down, step by step, so you can stop guessing and start using your P&L like a pro.
📊 What is a Profit and Loss Statement?
A Profit and Loss Statement (sometimes called an Income Statement) is a summary of your business’s revenue, costs, and profits over a specific period - usually a month, quarter, or year.
It shows:
✅ How much you earned (revenue)
✅ How much you spent (expenses)
✅ What is left over (profit or loss)
In other words, it tells you: Did your business make money or lose money?
🧩 The Key Sections of a Profit and Loss Statement
Here is what you will typically find on a P&L:
✅ Revenue (or Sales): The total income from your products or services.
✅ Cost of Goods Sold (COGS): The direct costs to produce what you sell (like materials or labor).
✅ Gross Profit: Revenue minus COGS, this shows how much you made before other expenses.
✅ Operating Expenses: The regular costs of running your business (rent, software, marketing).
✅ Net Profit (or Net Loss): What is left after all expenses are paid, this is the bottom line.
💡 What Should Your P&L Really Tell You?
Your Profit and Loss Statement is not just a list of numbers. It is a story about your business. Here is what you should be looking for:
1️⃣ Are You Actually Profitable?
Look at your Net Profit. Are you consistently making a profit, or are you running at a loss?
If your net profit is too low (or negative), it is a sign to review your pricing, cut costs, or find ways to increase revenue.
2️⃣ How Much Does It Cost to Run Your Business?
Your Operating Expenses section shows where your money is going. Are there areas where you can save?
For example:
Are subscriptions piling up?
Can you negotiate better rates with suppliers?
Is your marketing spend delivering results?
3️⃣ What are Your Profit Margins?
Calculate your Gross Profit Margin:
This tells you how much money you are making from sales after covering production costs.
Higher margins = more room to invest in growth or pay yourself more.
4️⃣ Are There Seasonal or Monthly Trends?
Review your P&L over several months. Are there patterns?…..like slow summers or a busy holiday season?
Spotting trends helps you plan for cash flow dips and set realistic revenue targets.
🛠️ How to Use Your P&L for Better Decisions
✅ Pricing: Are your prices too low to cover costs?
✅ Spending: Where can you cut back without hurting your business?
✅ Investments: Can you afford that new hire, software, or marketing push?
✅ Taxes: Are you setting enough aside for quarterly taxes?
Your P&L is not just for your accountant, it is for you to make smarter choices every month.
📅 How Often Should You Review Your P&L?
Once a year at tax time is not enough.
Review your Profit and Loss Statement monthly. This keeps you informed, agile, and able to course-correct quickly if needed.
Final Thoughts
Understanding profit and loss statement basics is a skill every business owner should master. It is not just numbers on a page……it is the financial story of your business.
By reviewing your P&L regularly and asking the right questions, you will make better decisions, protect your cash flow, and build a stronger, more profitable business.
Let’s make your finances work for you, not against you.
