Preparing Your Profit & Loss Statement

As a Raleigh small business owner, your profit and loss (P&L) statement may be one of the most important financial statements you prepare. A well-organized P&L can support your tax filings, help you assess your company’s financial health, and provide key insights into profitability trends. Yet, many small business owners overlook this crucial document—often because it feels too technical or time-consuming to manage.

Join the small business accounting professionals from C.E. Thorn, CPA, PLLC, as we explore how to prepare a small business profit and loss statement and how it may help evaluate your company’s financial performance. 

What Is a Profit and Loss Statement?

Why a Profit and Loss Statement Matters for Small Businesses

Your small business profit and loss statement is more than just an accounting formality—it’s a key tool for managing and forecasting business success.

Tax Reporting

A detailed income statement is generally required to calculate taxable net income, and consistent bookkeeping practices can help reduce errors that potentially lead to over- or under-payments.

Financing

Lenders may review your profit and loss statement before approving loans or lines of credit. It shows whether your business can generate enough operating income to cover debt obligations.

Strategic Planning

Reviewing profit and loss statements can help identify trends in operating expenses, evaluate gross profit margins, and support long-term strategic decision-making.

Key Components of a Profit and Loss Statement

A complete small businesses profit and loss statement includes several essential line items. While formats vary, most follow the structure outlined below.

Revenue (or Income)

This section records your total income from business sales, services, and any other money earned. Many small businesses break this down by category to provide a clearer picture of performance—such as product sales, service income, or one-time transactions.

Your company’s revenue typically includes:

• Sales of goods or services
• Refunds or rebates
• Other income, such as rental or investment income

Cost of Goods Sold (COGS)

Also known as “cost of sales,” these are the direct costs associated with producing your company’s goods or services. COGS may include materials, vendor payments, and labor directly tied to production. Subtracting COGS from total income gives you gross profit, an important indicator of how efficiently your business produces goods or delivers services.

Common examples of COGS:

• Raw materials or wholesale inventory
• Packaging or shipping materials
• Direct labor or subcontractor costs

Operating Expenses

Operating expenses are the costs required to run your day-to-day business operations that aren’t directly tied to production. These may include rent, utilities, payroll, advertising, and administrative costs. Monitoring your operating expenses helps ensure that overhead doesn’t erode your operating profit.

Examples include:

• Rent and utilities
• Marketing and advertising
• Staff salaries
• Office supplies and software subscriptions
• Repairs, maintenance, and insurance

When you subtract operating expenses from gross profit, you’ll arrive at operating income, which reflects profit generated from core business activities before considering non-operating items.

Other Expenses and Non-Operating Income

Many small businesses also account for non-operating income—such as interest earned—and additional expenses like depreciation or amortization. These may affect net profit but not necessarily indicate changes in day-to-day operations.

Typical non-operating items include:

• Interest, taxes, depreciation, and amortization (often abbreviated as EBITDA)
• Gains or losses from asset sales
• Investment income

Net Profit (or Net Income)

After subtracting all expenses incurred—including taxes, depreciation, and other expenses—from total revenues, you’re left with your net profit or net income. This figure shows how much money remains after all costs, giving you a comprehensive view of your business’s financial performance during the reporting period.

A positive net profit may signal sustained profitability, while consistent losses could suggest areas where it’s time to cut costs or reassess pricing strategy.

How to Prepare a Profit and Loss Statement for a Small Business

Creating a profit and loss statement may be done with accounting software, spreadsheets, or professional accounting services. The goal is to summarize revenue and expenses for a specific period in a way that’s accurate, consistent, and useful for decision-making.

The steps below outline a practical approach that can be adapted to your industry and record-keeping habits.

Gather Financial Data

Start by compiling bank statements, sales records, invoices, receipts, and your bookkeeping ledger for the reporting period. Having complete source documents generally helps your small business profit and loss statement align with other financial statements, such as the balance sheet and cash flow statement. Consistent reconciliations can reduce omissions and timing errors that might skew results.

List Income Sources

Enter all revenue streams, including product sales, services, and any nonrecurring income relevant to the income statement. Breaking out categories can make the small business profit and loss statement easier to read and may clarify which lines drive total revenues in the same period. Clear income categories also make trend comparisons across multiple accounting periods more meaningful.

Record Direct Costs (COGS)

Add the cost of goods sold associated with the company’s goods or services delivered in the reporting period. Subtracting these direct costs from revenue yields gross profit, a key indicator of how efficiently core business activities convert inputs into sales. Accurate timing (cash vs. accrual) may be appropriate to ensure gross profit reflects the period’s activity.

Include Operating Expenses

List operating expenses that support daily operations, such as rent, utilities, staff salaries, software, and advertising. Proper categorization helps you monitor total expenses and see how operating income changes as overhead rises or falls. Many small businesses review this section to identify opportunities to cut costs without harming service quality.

Account for Non-Operating Items

Incorporate non operating income and other expenses not tied to core operations, such as interest, taxes depreciation and amortization, and gains or losses on asset sales. Including these non operating items can provide a more complete financial report beyond operating profit alone. This step helps bridge the gap between operating results and overall net income.

Calculate Net Profit

Compute net profit by subtracting all expenses incurred from total income, including COGS, operating expenses, and other expenses. This figure shows how much money is left after expenses—often used to assess sustained profitability and answer how much profit the business generated in that period. Many small business owners compare net profit to previous periods or forecasted figures for variance analysis.

How to Analyze Your Profit and Loss Statement

A small business profit and loss statement is most useful when reviewed in context. Compare your P&L report with previous periods or forecasted figures to see whether your business is improving or facing new challenges. You may also compare your operating income and gross margin with industry benchmarks. This variance analysis can highlight areas where expenses are too high or sales are underperforming.

By looking closely at your income statement, balance sheet, and cash flow statement together, you can gain a more complete understanding of your company’s financial health.

How a Small Business CPA Can Help With Your P&L Statement

When working with a Raleigh CPA from C.E. Thorn, CPA, PLLC, you gain insights and practical support that makes creating a P&L statement easier to maintain and more useful for your business finances.

Our small business accountants work with clients to:

Profit and Loss Statement FAQs

Can I make my own profit and loss statement?

Yes, many small business owners create their own small business profit and loss statements using software or spreadsheet templates. However, working with a CPA may help ensure accuracy and compliance for your small business—especially when you’re filing taxes or applying for financing.

What does a small business profit and loss statement look like?

A standard small business profit and loss statement usually includes income, cost of goods sold, gross profit, operating expenses, and net income. It may also feature non-operating items, taxes, and depreciation depending on your reporting needs.

How do you calculate profit and loss for a small business?

To calculate profit and loss, start with total income, then subtract total expenses (including direct costs, operating expenses, and other deductions). The result shows how much profit your business generated—or the loss sustained—during that period.

How often should I prepare a profit and loss statement?

Most small businesses prepare a P&L statement monthly or quarterly to track ongoing financial performance. Reviewing statements regularly can help you identify patterns early and adjust accordingly.

Contact C.E. Thorn, CPA, PLLC for Financial Reporting Support

Do you want assistance creating a profit and loss statement sheet for your business? If so, C.E. Thorn CPA PLLC may be able to help. Our Raleigh-based team works closely with small businesses to prepare accurate financial statements, analyze results, and support strategic decision-making.

To see if we are a good fit for your business accounting needs, call us today at  919-420-0092 or fill out the form below.