At some point, someone’s going to ask for it, and you might be left wondering: What is a P&L statement?

You’ll soon realize that starting a business also means becoming a part-time accountant. 

The profit and loss statement is one of the most important tools in your business toolkit. It shows what you’ve earned, what you’ve spent, and how profitable things really are.

Whether you’re applying for a loan, planning for growth, or trying to figure out why the numbers aren’t adding up, this post will walk you through what a P&L statement is and how to use it to your advantage. 

What Is a P&L Statement: The Details 

Consider a P&L statement as your business’s report card, but focused only on income and spending. 

It doesn’t include how much cash is in the bank or what you owe in loans, as that’s more of a balance sheet thing.

The P&L is just about performance and answers the basics: are you making money or bleeding it?

Here’s what it typically includes:

  • Revenue: The total amount your business earned before any costs are taken out.
  • Cost of Goods Sold (COGS): These are the direct costs of making or delivering your product or service. For instance, for a bakery, that might be flour, eggs, and labor.
  • Gross Profit: This is your revenue minus COGS. It tells you how much you made after covering your core production or service delivery costs.
  • Operating Expenses: These are the everyday costs of running your business like rent, internet, salaries, advertising, and insurance.
  • Net Profit (or Net Loss): This is the final number—your total revenue minus all expenses. If it’s positive, great! If it’s negative, it’s time to investigate what’s going wrong.

It’s sometimes even called an income statement. Different names but same function—tracking profitability.

Why does it matter?

Because a strong P&L gives you visibility and control.

Lenders ask for it when you apply for funding.

Investors review it before they commit. 

And most importantly, it’s what you can use to run your business more confidently.

How to Create a P&L Statement 

You don’t need to be an accountant to put together a P&L. 

You just need to know where your money is coming from and where it’s going.

At its core, a P&L breaks down into three parts:

  1. Revenue: All the income you bring in
  2. Expenses: What you spend to operate
  3. Net Profit (or Loss): What’s left after subtracting the costs

Here’s how to build one from scratch:

Choose a Time Period

Most small businesses start with a monthly or quarterly P&L.

If you’re seeking a loan or investors, they’ll typically ask for a year-to-date P&L or data from the past 12 months.

List Your Revenue

Add up all income from sales or services. 

This should be gross revenue, before fees, returns, or costs. 

Keep it broken down by category if possible (e.g., product A, product B, service packages).

Calculate Your COGS

List out any direct costs tied to producing your product or delivering your service. 

This can include:

  • Raw materials
  • Packaging
  • Production-related labor
  • Merchant fees (if applicable)

Subtract COGS from revenue to get your gross profit.

Add Operating Expenses

These are your business’s ongoing costs that aren’t directly tied to production:

  • Rent
  • Internet and phone
  • Salaries or freelance help
  • Marketing and ad spend
  • Insurance, subscriptions, etc.

Once you total these, subtract them from your gross profit to get net profit or loss.

Use a Template or Software

You don’t have to do all of this in Excel unless you like spreadsheets.

Most bookkeeping software, like QuickBooks, Xero, or Wave, will auto-generate a P&L based on your transactions. 

If you’re not ready for software, a simple Google Sheets template can do the job.

How to Use a P&L 

A P&L statement can actually help you make smarter, faster decisions in your business.

Here’s how small business owners use it in the real world:

Spot Trends Before They Become Problems

Are your expenses creeping up faster than revenue? 

Has your gross margin been shrinking over the last three months?

Your P&L lays that out clearly so you can address it before it gets out of hand.

For example, if ad spend keeps climbing but sales don’t follow, it’s probably time to rethink your marketing strategy.

Know When You’re Ready to Grow

Hiring someone?

Launching a new service? 

Thinking about applying for funding? 

Your net profit and expense trends help you figure out if you can realistically handle it or if you need to tighten up first.

A lender or investor is going to look at whether your business is sustainable and your P&L is one of the first places they’ll look. 

A healthy P&L shows that you’re organized, self-aware, and already managing your numbers before they even ask.

Back Up Your Business Story With Numbers

You can say you had a “strong quarter,” but your P&L proves it.

It clearly shows revenue growth, reduced expenses, or improved margins backed by real numbers. 

That can be the difference between a maybe and a yes from a funding partner.

Make Faster Decisions

Here’s an example: let’s say you run a design studio. 

If your P&L shows project-based work brings in 80% of your revenue but eats up 90% of your time, that’s a sign to rethink your pricing or shift focus.

It becomes easier to cut what’s not working and double down on what is.

Common Mistakes to Avoid in Your P&L Statement

Even the most organized business owners run into a few snags. Here are five easy-to-make mistakes to watch out for:

  • Mixing personal and business expenses: Blurring the line between work and life leads to messy, unreliable data. Keep finances separate.
  • Misclassifying costs:  Don’t lump everything under “expenses.” Direct production costs belong under COGS; things like rent and admin tools are operating expenses. Mixing them up distorts your margins.
  • Ignoring one-time expenses: Big, one-off costs like laptops or annual fees can skew your numbers. Flag them separately so they don’t mess with your long-term view.
  • Not checking it regularly: A P&L isn’t something you dust off once a year. Monthly reviews help you catch red flags before they become real problems.
  • Overcomplicating categories: Every expense doesn’t need its own label. Group similar items and focus on what actually affects your bottom line.

Make Your P&L Statement a Launchpad With ROK Financial 

So, what is a P&L statement, really? 

Sure, it might look like just another boring spreadsheet, but it’s actually one of the smartest tools in your business. 

It helps you spot patterns, manage spending, and make sharper decisions.

Plus, when lenders or partners see a clear P&L, they know you’ve got a handle on your business and a vision for where it’s going. 

That kind of financial confidence opens doors to great opportunities.  

At ROK Financial, we turn that clarity into action. 

Whether you’re hiring, upgrading equipment, or smoothing out seasonal cash flow, we’ll connect you with funding options that actually fit your business. 

Have your numbers in place? 

Let’s explore what’s possible. 

Head over to ROK Financial and take the next step forward.