How to make a profit and loss statement (P&L) for your business
A profit and loss statement (P&L) shows whether your business made money over a period. Get it right and you know your true profit, not just what is in the bank.
Step 1: Total your income
Add up all sales revenue for the period. Do not count loans or capital as income, only what you earned from the business.
Step 2: Subtract cost of goods sold
The direct cost of what you sold: purchase price of stock, raw materials, direct labour. Income minus this is your gross profit.
Step 3: List operating expenses
Rent, salaries, utilities, marketing, transport, software, and other running costs. These are the costs of keeping the business open.
Step 4: Work out net profit
Gross profit minus operating expenses minus interest and tax equals net profit, the real bottom line.
Step 5: Compare across periods
Put months side by side to spot trends. Rising costs or falling margins show up here before they hit your bank balance.
Frequently asked questions
What is the difference between gross and net profit?
Gross profit is income minus the direct cost of goods sold. Net profit is what remains after all other expenses, interest and tax. Net profit is your true earnings.
Is a P&L the same as cash flow?
No. A P&L records income and expenses when they happen; cash flow tracks money actually moving in and out. A profitable business can still be short on cash.
How do I make a P&L quickly?
Record every sale and expense as it happens; accounting or billing software then generates the P&L automatically for any period.