How to Read a Profit & Loss Statement (And Use It for Growth)

One of my clients — a creative agency founder — once said, “I feel like my P&L is written in another language.” Truth is, it kind of is... unless someone walks you through how to read it. Once we broke it down together, she saw how her business was actually making money — just in the wrong places.

What Is a Profit & Loss Statement (P&L)?

Also called an Income Statement, the P&L shows how much money your business made and spent over a certain period.

It covers three main parts:

1. Revenue – All the money you earned

2. Expenses – All the money you spent

3. Net Profit (or Loss) – What’s left after subtracting expenses from revenue

📌 Think of it like your business’s report card for a month, quarter, or year.

A Simple P&L Breakdown

Here’s a sample layout:

Revenue - Cost of Goods Sold (COGS) = Gross Profit - Operating Expenses = Net Operating Income

+/- Other Income or Expenses = Net Profit (aka your bottom line)

Let’s decode the jargon:

• COGS: Costs tied directly to delivering your product/service (e.g., raw materials, freelance help)

• Operating Expenses: Rent, software, marketing, salaries, etc.

• Net Profit: Your business’s “take-home” amount before taxes

  
  

How to Actually Use Your P&L

Reading your P&L is only the start — the goal is to make better decisions.

Here’s how to put it to work:

1️⃣ Spot Trends in Income and Spending

Compare month-to-month or year-over-year:

• Is revenue growing steadily?

• Are expenses creeping up?

• Any categories ballooning (hello, software subscriptions)?

🧠 Pro Tip: Look at expense categories as a % of revenue for deeper insight.

2️⃣ Identify Low-Margin Services

Some services might look profitable — but aren’t worth the time.

Use your P&L to calculate:

(Gross Profit ÷ Revenue) x 100 = Gross Margin %

Low margins = Time to raise rates or cut the service.

3️⃣ Prepare for Tax Time

Your P&L is the foundation for your tax return:

• It shows income, deductible expenses, and net income

• A clean P&L = faster tax prep, fewer headaches

Make sure it’s updated monthly — not just in April.

4️⃣ Get Lender-Ready

If you ever apply for:

• A business credit card

• A loan

• A line of credit

...they’ll ask for your latest P&L.

Having a current one (with clean formatting) shows you’re financially organized and trustworthy.

How to Generate a P&L

You can create one from:

• QuickBooks or accounting software (automatically updated)

• Spreadsheets (if you track expenses manually)

• Or with help from your bookkeeper or tax professional

Don’t just file it away — review it monthly or quarterly.

If you’d rather focus on your work (or get outside for a hike instead of wrestling with spreadsheets), I can help — https://www.glavinicfs.com/bookandrew.