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How Do I Read a Profit and Loss Statement?

Greg Swanson

If you’ve ever asked how do I read a profit and loss statement, you’re not alone. The P&L, or income statement, is one of the most important financial documents for any small business owner to understand.

Quick answer: A profit and loss statement shows your revenue, costs, and profits over a set time—helping you measure your business performance and spot opportunities or issues.

Start with Revenue

Total Revenue: This is all the money your business earned during the period, including sales and services.
Break It Down: You might see line items for different revenue sources to help you track performance by category.

Understand Costs and Expenses

Cost of Goods Sold (COGS): These are direct costs tied to producing your product or service.
Operating Expenses: These include rent, payroll, marketing, and other day-to-day business costs.

Analyze Profit

Gross Profit: Revenue minus COGS. It tells you how efficiently you deliver what you sell.
Net Profit: The bottom line—what’s left after all expenses are deducted from revenue.

Understanding a P&L statement is crucial to managing your business. It reveals trends in sales, costs, and profits, so you can make better decisions, budget wisely, and grow sustainably. Learn small business financials like this to stay in control.

Updated: August 13, 2025

What is a profit and loss statement?

A profit and loss statement shows a business’s revenue, costs, and profits over a period—usually monthly, quarterly, or yearly.

Why is a P&L important?

It helps business owners measure performance, manage expenses, and make informed decisions about pricing, hiring, and growth.

What’s the difference between gross and net profit?

Gross profit is revenue minus direct costs; net profit is what’s left after all expenses, including overhead, are deducted.

How often should I review my P&L?

Most small businesses should review their P&L monthly to catch issues early and stay financially on track.