P&L Statement

The P&L is the financial statement most small business owners look at first. It tells you whether the business made or lost money over a given period — a month, a quarter, or a year.

P&L structure

A standard P&L flows from top to bottom: revenue at the top, then COGS subtracted to get gross profit, then operating expenses subtracted to get operating income, then interest and taxes subtracted to get net income at the bottom. Each line tells part of the story; the relationships between lines tell the rest.

What the P&L doesn't show

The P&L doesn't show cash — a profitable P&L can coexist with an empty bank account. It doesn't show what you owe or what you own. It doesn't tell you whether your labor is efficient or your pricing is sound. For those questions, you need the balance sheet, the cash flow statement, and the Simple Numbers metrics.

The Profit First model

Mike Michalowicz's Profit First approach reorganizes the P&L: Revenue − Profit = Expenses. The Ketchup Clarity Report uses a Profit First P&L model — it puts profit at the top as a non-negotiable allocation, then shows what's available for labor and expenses.