What is a profit and loss statement?

A Profit & Loss Statement (P&L) is like a score board for your business—at any point in time it tells you if you’re winning (making a profit) or losing (making a loss).

When you take a closer look at whether your business is winning or losing, it helps highlight what’s working and what’s not. The P&L statement tracks your business’s income and expenses over a specific period (like a month, quarter, or year).

Your P&L statement will include all sales, including credit sales that your customers might not have paid yet. It will also include expenses and invoices that you have incurred but not paid.

In stub it’s made up of three main parts:

Income (a.k.a. the “Money In” Section)

• This is the total amount of money your business earns from selling products or services.
• Think of it as your POS machine receiving a payment—cha-ching!

Expenses (a.k.a. the “Money Out” Section)

• This covers everything your business spends money on: rent , marketing, and even coffee (because let’s be real, entrepreneurs need caffeine).
• Some expenses are fixed (like rent) and some are variable (like the coffee).

Profit or Loss (a.k.a. the “Did I Make Money or Not?” Section)

• If revenue is bigger than expenses = PROFIT
• If expenses are bigger than revenue = LOSS
• This number is also called your Net Profit (or Net Loss)—it’s what’s left over after all your expenses are paid

When to use a profit and loss statement?

• Every month or quarter to see if your business is making money or if it’s just an expensive hobby.
• When applying for loans or investments—because banks and investors want proof that you’re not a financial disaster.
• When making business decisions—like hiring staff, increasing prices, or cutting back on unnecessary expenses (yes, maybe that new iPhone 15 ain’t a necessity boss).

Why use a profit and loss statement?

1. To make sure you’re actually making money—because "busy" doesn’t always mean "profitable."
2. To find ways to improve—maybe you’re spending too much on fancy sustainable packaging and not enough on distribution.
3. To avoid financial surprises—because no one likes looking at their bank account and realizing they’re broke.

The P&L Statement is your business’s reality check. It tells you if you're thriving, surviving, or diving. Watch that scoreboard!

Tips on how to use a profit and loss statement:

• Are you making a profit? → If yes, great! If not, time to adjust.
• Are your expenses too high? → Identify and cut unnecessary costs.
• Are expenses growing faster than revenue? → Time to manage costs better.
• Is revenue growing over time? → A good sign your business is scaling.
• Want a loan or investors? A solid P&L makes you look trustworthy.
• Thinking of increasing prices? See how it affects your revenue.
• Need to cut costs? Find areas where spending is too high.