A profit and loss statement — P&L, or income statement — answers one question: over a period of time, did the business make money? Revenue at the top, expenses in the middle, profit at the bottom.
Most owners glance at the last number and stop. The middle is where the useful information lives.
The structure, line by line
- Revenue (or sales) — everything the business earned in the period, including cash and app payments, not just bank deposits.
- Cost of goods sold (COGS) — the direct cost of delivering the work: materials, food cost, subcontractors on a job.
- Gross profit — revenue minus COGS. What is left to run the business with.
- Operating expenses — rent, insurance, software, advertising, vehicle, utilities, wages. The cost of being open.
- Net profit — gross profit minus operating expenses. What the business actually made.
The three numbers to read every month
1. Gross margin percentage
Gross profit divided by revenue. If your margin is falling while revenue is flat, your costs of delivery are rising — material prices, subcontractor rates, or jobs priced too low. This shows up here months before you feel it in the bank account.
2. Your three largest expense categories
Not the total — the top three. Almost every recoverable dollar in a small business is sitting in one of those three lines. Owners who can name them make different decisions than owners who cannot.
3. This month versus the same month last year
Month-over-month comparisons mislead in seasonal businesses. A slow February is only a problem if it is slower than last February. Year-over-year separates a real trend from the calendar.
Why most small business P&Ls are wrong
If any meaningful share of your revenue arrives as cash, Venmo, Zelle, or Cash App, a P&L built only from bank data understates revenue. Profit looks thin, margins look broken, and the owner concludes the business is struggling when the record is simply incomplete.
The fix is not more software. It is logging non-bank income as it happens and combining it with the statement before the report is produced.
P&L versus cash flow
A P&L can show profit in a month when your account balance fell — because a loan payment, an owner draw, or an equipment purchase does not appear as an expense. Read both. Profit tells you whether the business model works; cash flow tells you whether you can make payroll.
Getting one every month
LedgerFast produces a monthly P&L that combines your bank statement with logged cash and app income, plus cash flow, trend comparisons, and warnings on unusual transactions. Delivered as PDF, Excel, and in the portal. Plans from $49/month, first month free.
Disclaimer
This article is general educational information, not tax, legal, or accounting advice. LedgerFast is not a CPA firm and does not provide tax preparation, filing, audit, or attest services. Financial reporting requirements vary by entity and situation — consult a qualified accountant. Use of LedgerFast is governed by our Terms of Service.