Profit & loss template

What a profit & loss actually shows

A profit & loss statement (P&L, or income statement) shows whether your business made money over a period — a month, a quarter or a year. It starts with sales at the top and works down through your costs to the profit at the bottom. Read in sequence, it tells a story: how much you sold, what it cost to deliver, what it cost to run the business, and what was left.

It differs from a cash-flow forecast, which tracks the timing of money moving. A P&L can show a profit in a month you were short of cash, because it records income when earned, not when banked. Both matter; this template covers the profit picture.

The P&L structure to copy

Build these rows top to bottom in a spreadsheet, with a column per period:

Line	What it is
Revenue	Total sales in the period
Cost of sales	Direct costs of delivering those sales
Gross profit	Revenue minus cost of sales
Overheads	Fixed running costs
Operating profit	Gross profit minus overheads
Interest & finance costs	Cost of borrowing
Tax	Corporation tax estimate
Net profit	What's left — the bottom line

Revenue and cost of sales

Revenue is the value of what you sold in the period, excluding VAT. If you have distinct income streams, list them on separate rows so you can see which earns its keep.

Cost of sales (sometimes "direct costs") is everything that goes up and down with those sales — materials, stock, packaging, delivery, payment-processing fees and subcontract labour. It excludes fixed costs like rent. Subtract cost of sales from revenue to get gross profit, and divide gross profit by revenue for your gross margin as a percentage. That margin is one of the first numbers a lender checks.

Overheads, interest and the bottom line

Overheads are the fixed costs of running the business regardless of sales volume — rent, salaries, software, insurance, professional fees and marketing. Gross profit minus overheads gives operating profit: the result of your core trading before financing and tax.

Below that, deduct interest and finance costs, then an estimate for corporation tax, to reach net profit — the true bottom line. Keeping interest on its own line matters: it lets a lender see operating profit before financing, which is what they use to judge whether you can comfortably service new borrowing.

The ratios a lender reads off it

Your P&L feeds a handful of figures that shape a finance decision:

• Gross margin — gross profit ÷ revenue. Is each sale profitable enough?
• Net margin — net profit ÷ revenue. What survives to the bottom line?
• Interest cover — operating profit ÷ interest. Roughly how many times over you can meet your finance costs.

Knowing these before you apply puts you ahead. Our financial ratios cheat sheet explains the benchmarks, and the return on borrowing calculator tests whether new finance adds more than it costs.

Use it monthly, not just at year end

A P&L produced once a year by your accountant is a rear-view mirror. Run a simple monthly version yourself and you spot a slipping margin or creeping overhead while you can still act. Compare each month to the last, and to the same month last year, to separate seasonal swings from real trends. A monthly P&L sitting beside your budget is the heart of good financial control — and exactly the evidence that strengthens a funding conversation. This is general guidance, not tax advice; confirm tax treatment with your accountant.