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Read your profit and loss statement
Type the main lines of your profit and loss statement and get them back in plain words: what you kept after the cost of what you sold, what was left after every expense, and a few things worth noticing. Use your own numbers for one month, quarter, or year.
mychoiceadvisors.com · Based in Utah. Working remotely with small businesses across the United States.How to read this
- Sales
- Everything the business sold in the period. Every other number here is compared with it.
- Gross profit and gross margin
- Sales minus the cost of what you sold. The margin is the same amount as a share of sales: how much of each sale is left to cover rent, wages, and the other bills.
- Net income and net margin
- What is left after operating expenses too: the profit for the period. Below zero, it is a net loss.
- Owner’s draw
- Money you took out for yourself. It does not change net income, but it does come out of the cash the business has.
A worked example
A shop sells $10,000 in a month. The products it sold cost $4,000, so gross profit is $6,000: a 60% gross margin.
Rent, wages, and the other operating expenses come to $3,500, so net income is $2,500, or 25% of sales. If the owner took $1,500 in draws, $1,000 of the month’s profit stays in the business.
Example figures, not client figures.
FAQ
Questions about reading a profit and loss statement
Where do I find these numbers?
On your profit and loss statement, also called an income statement, for the period you want to look at. Bookkeeping software can usually print one for a month, a quarter, or a year.
Why is my profit different from what is in the bank?
The profit and loss statement shows what the business earned and spent in the period. Cash also moves for things that are not on it, such as loan payments, equipment purchases, owner’s draws, and invoices customers have not paid yet.
Is the owner’s draw an expense?
No. A draw is money you take out of the business for yourself, so it does not lower net income. If you are paid wages through payroll, those wages are an expense and belong with the operating expenses.
Do you keep what I type?
No. The math runs in your browser, and nothing you enter is stored or sent.
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