How to Read a Profit and Loss Statement

Ethan Riemer
Jul 11
3 min read

Don’t just file it away, understand what it’s telling you.

There’s a moment in every small business owner’s journey when they first open a profit and loss statement (P&L) and feel... nothing. Or maybe panic. Or maybe just confusion. Is this good? Bad? Should I call someone?

Here’s the good news: once you understand how to read your P&L, it becomes one of the most powerful decision-making tools in your business.

At Tenmile Bookkeeping, we work with business owners every day who want more than just tidy numbers. They want clarity. They want confidence. They want to know if their business is actually working. That’s where your P&L comes in.

Let’s break it down.

What Is a Profit and Loss Statement?

A profit and loss statement (also called an income statement) shows how much money your

business brought in, how much it spent, and whether you ended up with a profit, or a loss, over a specific period (usually monthly, quarterly, or annually).

Think of it as a story. It’s not about every little detail (like your bank statement might be). It’s about what happened in the big picture:

How much did you sell?
What did it cost to deliver those sales?
What was left over?
And what did you spend that on?

The 3 Main Sections of a P&L

Here’s what you’ll typically see:

1. Revenue (aka Income or Sales)

This is the total money you earned during the period. If you’re invoicing clients, making online sales, or collecting retainers, it all shows up here. This number is before any expenses.

Look for: Is this number going up over time? Are there seasonal dips or peaks?

2. Cost of Goods Sold (COGS)

COGS includes the direct costs to deliver your product or service. That might be materials, subcontractors, or product inventory. Not every business has COGS, especially service-based businesses, but if you do, it should be tracked separately.

Look for: What percentage of your revenue is going toward COGS? If it’s climbing, are your prices keeping up?

3. Operating Expenses

This is where the day-to-day costs of running your business show up: rent, software, marketing, salaries, insurance, meals, and more.

Look for: Are there any bloated categories? Are expenses increasing faster than revenue?

Key Line Items You Should Know

Gross Profit = Revenue - COGS
This shows how much money you have left before operating expenses.
Net Profit = Gross Profit - Operating Expenses
This is what’s left after everything. It’s the bottom line and it tells you if your business is actually profitable.

Hot tip: If your Net Profit is consistently razor-thin or negative, that’s your cue to make changes—raise prices, cut expenses, or both.

What Your P&L Can Tell You (That Your Bank Balance Can’t)

Many business owners run on gut instinct and bank balances. We get it. But here’s what your P&L can tell you that your bank account never will:

Are you pricing your services right?
Are expenses creeping up unnoticed?
Are you paying for tools you don’t use?
Are your profit margins healthy?
Are you really making money—or just moving it around?

How to Actually Use Your P&L

Here’s how we recommend using your P&L to steer your business:

Review it monthly. Don’t just glance, compare it to previous months.
Look for trends. Are sales growing? Are expenses stable?
Spot red flags early. Catch issues before they snowball.
Make data-backed decisions. Hire, invest, or cut back with confidence.

You Don’t Have to Do This Alone

We don’t expect you to become a financial analyst overnight. But as a business owner, knowing how to read your numbers is essential and empowering.

At Tenmile Bookkeeping, we don’t just send you a P&L and wish you luck. We walk you through it, every month.

Because numbers shouldn’t be scary. They should be your superpower.

Want help making sense of your P&L?

Let’s talk. We’ll show you how clear, consistent bookkeeping turns confusion into clarity and clarity into profit.