What your profit & loss statement is (and what it can tell you about your business)

If you own a business, there is one report you’ll hear about constantly – but may not fully understand: the Profit and Loss Statement, often called a P&L.

This report isn’t just for accountants or tax filings. It’s one of the most important tools you have for understanding how your business is performing and making informed decisions moving forward.


Here’s what the Profit & Loss statement is, how to read it, and what it can tell you about your business.

1. What is a Profit & Loss Statement?
The Profit & Loss statement shows:
Income (What your business earned)
Expenses (What your business spent)
Net profit or loss (What’s left over)

It covers a specific time and is a valuable tool that helps answer one simple – but critical – question:
 
Is my business actually making money?


2. What Your Income Section Can Tell You
The income portion of your P&L shows how much revenue your business brought in during the period- but this is also where many business owners misunderstand what the numbers actually mean.
A common misconception is assuming total revenue equals what the business is “making.” In reality, revenue only shows how much money came in before expenses are paid.

By reviewing the income section, you can see:
• Whether revenue is consistent or fluctuating
• If growth is happening – or stalling.
• How this period compares to prior months or years

This helps you understand trends, not just totals.

Key takeaway: Revenue tells you how busy you are – but not how profitable you are.


3. What Your Expenses Reveal About Your Business
Expenses are often where the biggest insights – and problems – live.

Your P&L can reveal:
• Spending that’s increased over time
• Categories that may be misclassified
• Missing expenses or deductions
• Personal expenses mixed into business costs

If expenses are not accurate or organized, the profit number at the bottom won’t be dependable either. 

Key takeaway: Clean expense categories lead to clearer decisions and smoother tax preparation.


4. Why Profit Doesn’t Always Mean Cash
One of the most common misunderstandings is assuming profit equals cash in the bank.
Your P&L does not show:
• Loan principal payments.
• Owner draws or distributions.
• Timing of customer payments

This is why a business can appear profitable on paper but still feel cash tight.

Key takeaway: Profit and cash flow are related – but not the same. 


5. What A P&L Can Tell You About Owner Pay
How you pay yourself matters more than many business owners realize.
A P&L can highlight:
• Whether owner compensation is consistent 
• If payroll or draws align with profitability
• Potential issues that affect taxes or compliance 

This is especially important for business owners who wear many hats and don’t review reports regularly. 


Why an Accurate P&L Matters for Taxes and Planning
Your Profit & Loss statement is the foundation for:
Tax preparation
Year-end adjustments
Financial planning
Setting realistic goals for the next year

If the P&L is inaccurate or outdated, decisions based on it will be inaccurate too.

Key takeaway: a clean P&L saves time, reduces stress, and prevents surprises.


A Profit & Loss statement isn’t just a report your accountant asks for – it’s a roadmap for your business.
Understanding what it shows (and what it doesn’t) gives you clarity, confidence, and control over your finances – whether you’re preparing taxes, planning for growth, or simply trying to understand where your money is going.


Need Help Reviewing Your P&L?
If you’re unsure whether your Profit & Loss statement is accurate – or you’d like help understanding what it means for your business – professional review can make a big difference.
Reach out anytime to discuss bookkeeping cleanup, financial reviews, or tax preparation support.


Click here to schedule your free consultation.
520-668-6537