Simple Profit and Loss Statement for a Small Business

By Cedar & Ledger

A profit and loss statement (often called a P&L or income statement) answers one question: over a set period, how much did the business bring in, how much did it spend, and what was left? You don't need accounting software to make one. If your income and expenses are already sorted into categories, a basic monthly P&L takes a few minutes. This guide walks through building one, reading it, and the common things that throw the numbers off.

The cleaning business and all dollar amounts below are made-up examples, not typical numbers. How you report income and expenses for taxes depends on your situation and the rules, so ask a tax professional or check the IRS website (IRS Publication 334, Tax Guide for Small Business, is a plain starting point). This is general information, not tax, legal, accounting or financial advice.

Quick checklist

• ☐ Pick the period (one month is a good start)
• ☐ Total income by type, minus refunds
• ☐ Total expenses by category
• ☐ Net profit = total income - total expenses
• ☐ Profit margin = net profit ÷ total income
• ☐ Leave out transfers, owner draws and personal spending
• ☐ Check the totals match your records
• ☐ Compare with last month

Want the P&L to fill itself in? Build it into a small business bookkeeping spreadsheet.

Step 1: Pick the period

A P&L always covers a stretch of time: a month, a quarter or a year. Monthly is easiest to keep up with and makes changes easy to spot. A simple way to start is to count money when it actually comes in or goes out of the account (often called the cash method). There are other methods, and which one you use for taxes is a question for a tax professional.

Step 2: Total your income

List each kind of income on its own line, then subtract any refunds you gave. Example (made-up numbers): Maple Street Cleaning, October:

Splitting income into two or three lines shows what's actually bringing money in. Here, add-on services are small but easy to grow.

Step 3: Total your expenses by category

Use the same category list you sort receipts into every month, so months compare cleanly. (How to Sort Small Business Expenses Into Categories covers picking one.)

Don't skip small items. Card fees and $10 app plans are easy to forget, and they add up.

Step 4: Net profit and profit margin

Net profit = total income - total expenses. In the example: $2,700.00 - $565.42 = $2,134.58.

Profit margin = net profit ÷ total income. In the example: $2,134.58 ÷ $2,700.00 ≈ 79.1%. That means about 79 cents of each dollar of income was left after expenses that month. A service business with few supplies will usually show a higher margin than one that buys inventory, so compare with your own past months, not with other businesses.

Net profit isn't the same as take-home pay. Income tax and self-employment tax usually still come out of it, so many people set aside part of each payment for taxes. How Much to Set Aside for Side Hustle Taxes walks through one way to do that.

Step 5: Leave out what isn't income or an expense

Some money moves through the account without being income or a business expense. Keeping these out stops the P&L from looking better or worse than it was:

• Transfers between your own accounts, like moving money from checking to a tax savings account.
• Money you take out for yourself (often called an owner draw). Example: if the owner of Maple Street Cleaning moved $1,200.00 to their personal account in October, that isn't a business expense, so it stays off the P&L (how to track owner draws shows a simple log). How owner pay works depends on how the business is set up, so ask a tax professional.
• Personal purchases that landed on the business card. Note them separately.
• Loan amounts. Money you borrow isn't income, and the part of a payment that pays back the loan itself usually isn't an expense. Interest may be treated differently.
• Big equipment purchases, like a $289.00 vacuum (made-up). These may need to be handled differently for taxes, so flag them and ask.

Step 6: Check the totals

Before you trust the numbers:

1. Add up every income row and every expense row in your records for the month, and make sure they match the P&L totals.
2. Look for rows with no category. These are the usual reason totals don't match.
3. Glance at the bank statement. If a deposit or a charge isn't in your records, add it. How to Reconcile a Business Bank Account Each Month covers the full monthly check.

Weekly Bookkeeping Routine for a Small Business keeps this end-of-month check short.

Step 7: Compare months

One month on its own doesn't tell you much. Three months side by side start to show a trend. Example (made-up numbers):

Questions worth asking: Is income growing, and from which line? Did one expense jump? (September's expenses were higher. Was that a one-time supply restock?) Is the margin steady? A yearly P&L is the same table with 12 months and a total.

For the full-year version, Small Business Year-End Bookkeeping Checklist walks through the other year-end checks.

Common snags

• Counting a refund as an expense instead of taking it off income. Either way the net profit comes out the same, but taking it off income keeps your income number accurate.
• Counting the same sale twice, once when the invoice goes out and again when it's paid. Pick one and stick to it.
• Leaving out payment platform fees because the deposit already had them taken out. Log the full sale as income and the fee as an expense, so both show.
• Changing categories mid-year, which makes months hard to compare.
• Treating net profit as spending money before setting aside for taxes.

A spreadsheet that builds the P&L for you

You can build all of this in any spreadsheet with a SUMIF per category. If you'd like it ready-made, the Small Business Bookkeeping Spreadsheet ($12, Excel and Google Sheets) has a transactions tab with room for 1,500 entries and category dropdowns. From those rows it fills in a monthly and yearly profit and loss, with a warning if any row is missing a category. It also has a dashboard with year-to-date net profit, profit margin and your top 5 expense categories, plus a summary of the expenses you marked deductible. It doesn't connect to your bank, so you type in transactions yourself. It tracks one business and one year per file. It's a record-keeping tool, not accounting software and not tax advice (details).

Honest note: I make this spreadsheet and sell it under Cedar & Ledger, so I'd earn from a purchase. General information only, not tax, legal, accounting or financial advice.

Try the free break-even calculator (profit per sale and sales needed) →

Try the free profit and loss calculator →

Try the free owner pay calculator →

Related template: read about the small business bookkeeping template

See all Cedar & Ledger templates