Your Profit & Loss (P&L) statement tells you if your business is making money or losing it.
It’s not just an “accountant thing” — it’s a tool for smart decision-making.
If you can read your P&L like a CEO, you can:
- Spot what’s working
- See where money’s leaking
- Make better choices faster
So let’s break it down, clearly and simply.
The 5 Most Important Lines in Your P&L
You don’t need to read every detail. Focus on these five:
1. Revenue (or Sales)
This is all the money your business has earned from selling products or services.
If this is going up, your business is growing. If it’s flat or dropping, time to investigate.
2. Cost of Sales (or Direct Costs)
This is what it costs to deliver your product or service.
Example: buying materials, paying freelancers, or supplies.
If this number is high, your profit might be getting squeezed.
3. Gross Profit
This is Revenue minus Cost of Sales.
It shows how much money you’re making from your main work — before rent, admin, marketing, etc.
4. Expenses (Overheads)
These are all the running costs of the business.
Think: office rent, software, wages, marketing, phone bills, accountant fees.
If this number keeps rising, it can eat away your profit.
5. Net Profit (or Net Loss)
This is what’s left after all the bills are paid.
This is the number that really matters. If it’s negative, your business is losing money. If it’s positive — good job!
How to Read It Like a CEO
Reading your P&L like a CEO means you don’t just look at the numbers — you ask the right questions.
Here’s how:
Look at Trends
- Is your sales going up or down compared to last month or last year?
- Are your costs rising faster than your income?
Compare Gross Profit and Net Profit
- If gross profit is strong, but net profit is low — your overheads may be too high.
- If gross profit is weak — your prices might be too low, or your delivery costs too high.
Watch for Big Jumps
Any line that suddenly jumps or drops is a red flag or opportunity.
Ask yourself: “Why did this change?”
Don’t Get Lost in the Small Stuff
You don’t need to worry about every line. Stick to the key ones and ask:
- Are we making money?
- What’s helping or hurting profit?
Common Mistakes Business Owners Make
- Only looking at total income, not actual profit
- Forgetting about rising expenses
- Not comparing one period to another
- Ignoring the report completely (until tax time)
What You Should Be Doing
Here’s a simple checklist for reviewing your P&L:
✅ Look at your latest P&L – monthly or quarterly
✅ Check your sales, gross profit, and net profit
✅ Compare to the same time last year
✅ Spot any increases in expenses
✅ Ask: What can I change next month to improve profit?
You don’t need to be an accountant — just curious and consistent.
Need Help?
If you’ve never really understood your P&L — or feel unsure how to use it — we’re here to help.
We’ll review your Profit & Loss with you, in plain English, and show you:
- Where the risks are
- Where you could be saving
- What needs changing
