How to read your profit and loss statement
Your P&L tells a story from the top line to the bottom. Here’s what to look at, in order.
The short answer
Start with revenue, then gross margin (revenue minus the direct cost of what you sell), then operating expenses, then net profit. Compare each line to last month and last year to see what changed.
Revenue
Is it growing, flat or shrinking compared with the same period last year? Seasonal businesses should compare like months.
Gross margin
Revenue minus cost of goods sold, as a percentage. If it slips, prices, supplier costs or discounting usually explain why.
Operating expenses
Rent, payroll, software and marketing. Watch for costs that grow faster than revenue.
Net profit
What’s left. Remember that profit isn’t cash: a profitable month can still leave the bank account lower.
Questions
Why is my profit different from my bank balance?
Profit counts income and expenses when they’re recorded; your bank only sees cash. Loan payments, owner draws, inventory purchases and unpaid invoices all create the difference.
Your situation isn’t general. A CPA can tell you how this applies to you.
Ask about thisGeneral information as of October 2026, not advice for your situation. Tax rules change; check with a professional before acting.