Bookkeeping basics
How to Read a Profit & Loss Statement (With Real Examples)
A plain-English walkthrough of what a P&L actually tells you, how to read one, and what sample P&Ls look like for a personal trainer, therapist, salon, and franchise restaurant.
Written by Matt Reese, CPA · 7 min read · Published April 2026·Share on LinkedIn
Key Takeaways
- A P&L shows every dollar earned and spent over a period — it's a movie, not a snapshot.
- Gross profit = Revenue minus direct costs. Net profit = Gross profit minus everything else.
- Healthy net margins vary widely by industry: 80–90% for solo service businesses, 10–20% for restaurants.
- P&L and cash flow are different. You can be profitable on paper and still run out of cash.
What a P&L actually is
A bank statement shows you the balance of your account right now — a snapshot. A profit and loss statement (also called an income statement) shows you everything that happened over a period of time — how much you earned, what you spent it on, and what was left. It’s the movie.
Your CPA looks at the P&L to understand the health of the business. The IRS uses it to calculate your tax bill. You should use it to know whether things are actually going well — or whether good revenue is masking a problem.
The five numbers that matter
Every P&L flows from top to bottom through the same structure:
- Revenue — All the money your business brought in. Also called gross income or sales.
- Cost of Goods Sold (COGS) — The direct cost of whatever you sold: materials, inventory, direct labor. A personal trainer has almost no COGS. A restaurant does.
- Gross Profit — Revenue minus COGS. What’s left before overhead. A high gross margin means you have room to run the business. A low one means you’re squeezed before you pay rent.
- Operating Expenses — Everything else: rent, insurance, marketing, software, wages, your CPA. These are the fixed costs of keeping the business running.
- Net Profit — Gross profit minus operating expenses. The bottom line. What the business actually earned after every dollar was accounted for.
Revenue is vanity. Gross profit is sanity. Net profit is reality.
Sample P&L: Personal trainer
A solo personal trainer working with 25–30 private clients, plus group classes, typically has very low overhead. Almost everything that comes in becomes profit — which also means almost everything is subject to self-employment tax.
High margins are the norm for solo service businesses with no employees. The catch: that $105,400 is almost entirely subject to self-employment tax (15.3% on ~$97k), on top of income tax. Tax planning matters enormously here.
Sample P&L: Licensed therapist (LCSW)
A licensed therapist in private practice typically mixes private-pay clients (higher rates, no insurance lag) with insurance billing (more volume, more admin). Overhead is low — office rent and software — which gives strong margins even at moderate revenue.
At $154k in net profit, this therapist is likely paying $20k+ in self-employment tax alone. An S-corp election at this income level typically saves $8,000–12,000 annually after compliance costs.
Sample P&L: Hair salon with 3 employees
Once you add employees and a lease, the P&L gets more complex. Revenue is higher, but so is overhead. You now have COGS (product and color supplies), payroll taxes, and the fixed costs of a physical space regardless of how busy you are.
The owner is still netting $154k, but the margin compresses dramatically with employees and a lease. If revenue drops 20%, expenses barely move — which is why location-based businesses need a cash cushion.
Sample P&L: Franchise restaurant (fast casual)
Restaurant economics are brutal. High revenue, high cost of goods, high labor, and significant fixed costs (rent, franchise fees) mean thin net margins — even in a successful operation. The franchise royalty is a percentage of gross revenue, not profit, which makes it expensive in slow months.
A 15% net margin is actually healthy for a franchise restaurant. The industry average is 3–9%. The franchise model provides systems and brand, but the royalty + advertising fund (7% of revenue) is a real cost that comes before the owner sees a dollar.
What good margins look like by business type
| Business Type | Typical Gross Margin | Typical Net Margin | Why |
|---|---|---|---|
| Solo service (trainer, consultant, coach) | 95–100% | 70–90% | No product cost, minimal overhead |
| Licensed professional (therapist, accountant, attorney) | 95–100% | 65–85% | High hourly rates, low overhead |
| Salon / spa with employees | 80–90% | 25–45% | Payroll and lease compress margins |
| Retail (boutique, specialty shop) | 40–60% | 5–15% | High inventory and occupancy costs |
| Restaurant (independent) | 60–65% | 3–9% | Labor + food cost leave little room |
| Franchise (fast casual) | 62–70% | 10–20% | Royalties add cost, systems add efficiency |
| SaaS / software | 70–90% | 10–30% | High margins but high R&D and sales costs |
P&L vs. cash flow: the check is in the mail problem
Here’s a scenario: You do $30,000 in consulting work in December. You bill the clients. Your P&L shows $30,000 in revenue and a healthy profit. But the checks don’t arrive until January. Your bank account in December looks terrible.
This is the difference between accrual accounting (P&L records revenue when earned) and cash basis accounting(records it when received). Most small businesses use cash basis, which means the P&L and bank account usually match more closely. But either way, a profitable P&L and a healthy cash position aren’t the same thing.
The practical rule
What to look for when you pull your P&L
Most owners look at net profit and close the tab. Here’s what’s actually useful:
- Gross margin trend. If gross margin is shrinking month over month, your direct costs are rising faster than your prices. That’s a pricing or supplier problem, not an overhead problem.
- Largest expense categories. Are any categories significantly higher than last year? An unexpected jump in “miscellaneous” usually means something got miscategorized.
- Revenue mix. Which revenue streams are growing? Which are flat or declining? A salon with three stylists that’s growing retail faster than services has a different strategy conversation than one going the other direction.
- Owner compensation. Is your profit realistic, or is it artificially high because you’re not paying yourself? Your P&L should show what the business actually costs to run — including a reasonable value for your labor.
You might also read
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Tax planningHow Much Should I Save Each Month for Taxes?
A simple monthly savings formula, why profit — not revenue — is the right starting point, and how to build a system you'll actually follow.
BookkeepingDoes Every Business Transaction Need to Be Accounted For?
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Frequently asked
Questions owners actually ask
- How often should I look at my P&L?
- Monthly at minimum. Quarterly is better than nothing. The point is to catch trends early — a dropping gross margin in March tells you something is wrong before it becomes a crisis in Q4.
- My P&L shows a profit but my bank account looks empty. Why?
- Classic cash flow problem. Profit is accounting — it records revenue when earned and expenses when incurred. Cash flow is reality — money in the bank. If clients are slow to pay, if you made a big equipment purchase, or if you took large owner distributions, your P&L can show profit while your checking account suffers.
- Does a sole prop have a P&L?
- Technically the IRS equivalent is Schedule C on your 1040 — same concept, different form. Revenue minus expenses equals net profit, which flows to your personal return. Good bookkeeping software generates a real P&L even for sole props.
- What's the difference between gross profit and net profit?
- Gross profit is what's left after you subtract the direct cost of delivering your product or service (materials, inventory, direct labor). Net profit is what's left after you also subtract all your overhead — rent, insurance, marketing, admin, your own salary. For service businesses with no product cost, gross profit and revenue are often the same thing.
Take the next step
Turn tax questions into a plan. Talk with Matt or see how we work with operating business owners.
Educational content only.This article is for informational purposes and does not constitute tax, legal, or investment advice. Every owner’s facts are different; consult a qualified CPA and advisor before acting. Tax and accounting services are provided through Matt Reese, CPA; investment advisory services are provided through Measured Risk Portfolios, a registered investment adviser. Matt Reese, CPA and Measured Risk Portfolios are separate entities; clients are not required to engage both.