Profit and Loss Statements for Small Businesses

A profit and loss (P&L) statement helps you understand the financial performance of your business. It allows you to track what you’re earning and spending. A template for a profit and loss statement is a powerful decision-making tool that keeps you grounded in the numbers. Let's dive into what to include in your profit-loss statement template and how to analyze your data.

What is a Profit and Loss Statement?

A P&L statement is a financial report that shows your company's revenue and expenses over a set period. It typically covers a month or a quarter and helps you determine whether your business is generating a profit or incurring a loss. Regular profit and loss statements can help you:

• Track business performance

• Prepare for taxes

• Manage budgets

• Apply for small business loans

• Attract investors

• Make data-based decisions

Components of a Profit and Loss Statement

Most profit and loss statement examples or templates follow a similar structure, regardless of your industry. Here’s what to include:

• Revenue (or Sales): List all the money your business generates during the reporting period, before deducting any expenses.

• Cost of Goods Sold (COGS): Include the direct costs of producing your product or delivering your service, such as materials, labor, packaging, and other expenses.

• Gross Profit: Subtract COGS from your revenue to see the amount of revenue you earned before deducting operating costs.

• Operating Expenses: Track the day-to-day costs of running your business and learn how to create an operating budget. Your business expense plan should include rent, payroll, software, insurance, and marketing.

• Operating Profit: Take your gross profit and subtract operating expenses. This figure shows your core profitability.

• Other Income and Expenses: Note anything outside of normal operations, like interest, investments, or one-time gains and losses.

• Net Profit (or Net Income): Subtract all remaining expenses from your operating profit. This number determines whether your business made a profit or incurred a loss.

Profit and Loss Template: How to Organize Your Statement Data

To create an informative profit and loss statement, organize your data to highlight your revenue and expenses at a glance. Use accounting software or a spreadsheet, and follow a consistent structure to track patterns over time. If you need a simple profit and loss statement example to follow, start with this basic layout:

Profit/Loss Statement Template

Period covered

Revenue

• Product sales

• Service income

Total revenue:

Cost of Goods Sold (COGS)

• Materials

• Labor

• Shipping and fulfillment

Total COGS:

Gross Profit

(Total revenue - Total COGS)

Operating Expenses

• Rent

• Salaries and wages

• Marketing

• Software and subscriptions

• Utilities

Total operating expenses:

Operating Profit

(Gross profit - Operating expenses)

Other Income and Expenses

• Loan interest

• Miscellaneous income/expenses

Total other income/expenses:

Net Profit (or Loss):

• (Operating profit +/- Other income/expenses)

Update this profit and loss template as needed and review it alongside your budget or forecast.

How to Use a Profit and Loss Statement to Assess Business Health

Your profit and loss statement tells you how your business performs in real time. Regular analysis of your statements offers insight into what drives profitability and what holds you back. Here’s what to review:

1. Track Revenue Trends

Compare monthly or quarterly sales to identify growth or stagnation. The numbers can also alert you to seasonal dips.

2. Evaluate Gross Profit

Subtract COGS from revenue to see how efficiently you deliver your product or service. A shrinking margin may signal rising costs or pricing issues.

3. Review Operating Expenses

Consider categories such as rent or software. If expenses climb faster than revenue, identify what’s driving the increase.

4. Watch Net Profit Closely

Recurring losses may indicate an unsustainable pricing model or cost structure. Even if you’re profitable, ensure that your margins support long-term growth. Start by calculating the profit margin for your small business.

5. Look for Patterns

Use your profit and loss statements to compare results to past periods. Small shifts over time can signal bigger underlying trends.

Best Practices for Analyzing Your P&L Statement

When you update your template for profit and loss statement regularly, you transform your financial data into a valuable decision-making tool. The following best practices help you get the most out of your analysis:

• Compare Periods: Track month-over-month or quarter-over-quarter data. The side-by-side comparison helps you identify trends and highlight problem areas. You can measure progress over time and back up your findings.

• Use Percentages: Convert line items into percentages of total revenue. For example, if marketing costs make up 15% of revenue one month and 25% the next, you can quickly spot the shift.

• Separate Fixed and Variable Expenses: Group fixed costs (like rent and insurance) separately from variable costs (like supplies and shipping). This distinction helps you plan for changes in sales volume.

• Call Out One-time Events: Flag any unusual or one-off expenses so they don’t distort your view of normal operations.

• Look Beyond the Bottom Line: Even if you have a profitable month, keep an eye on margins, seasonal changes, rising expenses, and cash flow.

• Visualize Your Data: Use charts or dashboards to identify patterns and outliers. A visual representation can reveal what spreadsheets may conceal.

How Justworks Helps You Leverage Profit and Loss Statements

By preparing and analyzing profit and loss statements, you stay proactive about your business. This entails strong organizational skills, but you don’t have to handle every detail on your own. Justworks provides flexible solutions such as Justworks Payroll to simplify HR tasks. Our Professional Employer Organization (PEO) platform enables you to monitor labor costs and highlight trends, keeping you on track with your financial strategy. Get started with Justworks today.