Understanding Your P&L Statement: A Visual Guide for Business Owners

As a business owner, financial report reading may not be your strong point. For instance, while you’ve probably heard the term “P&L Statement” thrown around, do you know what it really means?

A Profit and Loss (P&L) statement is like a scorecard for your business, showing you how much money you’ve made and spent over a certain period. It might seem intimidating at first, especially if you’re new to running a business, but understanding your P&L statement is crucial for making smart decisions and keeping your company on track.

What is a P&L Statement?

In simple terms, a P&L statement (also called an “income statement”) is a financial report that summarizes your business’s revenue, costs, and expenses over a specific period, usually a month, quarter, or year. This profit and loss analysis is an essential tool for tracking your company’s financial performance and helps you make informed decisions about your business’s future.

Key Components of a P&L Statement (Using QuickBooks Online)

Let’s break down the main parts of a P&L statement, using QuickBooks Online as our example:

1. 1. Revenue (aka Income): This is the total amount of money your business earned from selling products or services.
   2. Costs of Goods Sold (COGS): These are the direct costs associated with producing your products or delivering your services.
   3. Gross Profit: This is the money left over after subtracting COGS from your revenue.
   4. Expenses: These are the costs of running your business, like rent, utilities, and marketing.
   5. Net Profit (aka Net Income): This is the final result, showing how much money your business made or lost after subtracting all expenses from your gross profit.

How to View Your P&L Statement in QuickBooks Online

Accessing your P&L statement in QuickBooks Online is a breeze. Here’s how:

1. 1. Log in to your QuickBooks Online account.
   2. Click on the “Reports” tab on the left-hand side of the screen.
   3. Find “Profit and Loss” under the “Business Overview” section and click on it.

 

4. 4. Choose the period you want to view (e.g., last month, this quarter, or a custom date range).
   5. Click “Run Report” to generate your P&L statement.

QuickBooks Online Tip: Use the “Customize” button on your P&L report to add or remove columns, change the reporting period, or compare your performance to previous periods. This will help you tailor the report to your specific needs and gain even more valuable insights into your business’s financial health.

 

Reading and Interpreting Simple Data 

Now that you have your P&L statement, what do you do with it? Start by looking at your revenue trends over time. Is your income growing, staying steady, or declining? 

Then, compare your expenses from one period to another. Are there any areas where costs are increasing faster than revenue?

For example, let’s say your P&L shows that your revenue has grown 10% over the last quarter, but your expenses have increased by 15%. That could be a red flag, indicating that you need to find ways to cut costs or boost sales to keep your business profitable.

In my business, I like to check out different software applications because I’m always looking for ways to become more efficient, more effective, and more profitable. So many apps make promises that sound good, but until I try them out, I don’t know which ones will integrate well with my business. So I sign up for their free trial.

But free trials can expire quickly, and sometimes I forget to cancel them before they bill me. Then my credit card bill starts adding up.

I like to check this category on my P&L regularly since I know this is where I tend to spend. Doing so helps me control (and eliminate) unnecessary expenses.

The Value of Understanding Your P&L Statement

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Making Smart Decisions for the Future of Your Business

Understanding your P&L statement is a critical skill for any business owner, and QuickBooks Online makes it easy to access and interpret your financial data. By regularly conducting a profit and loss analysis, you’ll gain valuable insights into your company’s performance and be better prepared to make smart decisions for your business’s future.

If you need help getting started with QuickBooks Online or want personalized guidance on using your financial reports to grow your business, schedule a consultation with me today. With my expert assistance, you’ll be well on your way to mastering your P&L and taking your company to new heights.