Why Founders Should Look at Their P&L Second

Once you’ve reviewed your balance sheet and confirmed that everything looks accurate, then it’s time to move on to your profit and loss statement.

Often referred to as the P&L or income statement, this report tells you how your business is performing over a specific period of time, but its reliability hinges on the accuracy of your balance sheet.

What Is a P&L?

The profit and loss statement shows your business’s revenue, costs, and expenses over a defined timeframe: monthly, quarterly, or annually. The result? A bottom-line number that tells you whether your business is making a profit or taking a loss.

It answers key performance questions like:

• How much did we earn?

• What did we spend to earn it?

• Are we operating at a profit, or at a loss?

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It’s the go-to report for measuring performance, identifying trends, and making day-to-day decisions about spending, pricing, and hiring.

Why Review the P&L Second?

Because it’s only meaningful if your underlying balances are correct.

The P&L pulls information from multiple accounts.

Sales, cost of goods sold, payroll, rent, marketing, and more. But if the bank balances on your balance sheet are off, or if transactions haven’t been properly categorized or reconciled, your P&L will paint a very distorted picture.

What You Can Learn From Your P&L

Once you know it’s accurate, the P&L becomes a powerful tool. Here’s what founders should be looking at:

• Revenue trends: Are sales growing? Is business seasonal?

• Cost of goods sold (COGS): Are your direct costs too high compared to revenue?

• Operating expenses: Are you overspending in certain areas (subscriptions, marketing, etc.)?

• Profit margins: What’s left after expenses, and is that margin sustainable?

• Net income: The final scorecard - did your business make money this period?

  
  

Tips for Founders Reviewing a P&L

• Look at it side by side with previous periods. Monthly comparisons help you identify growth or dips. If you’re not sure how to do this, just ask - we’re here to help.

• Drill into any large or unexpected numbers. Are those one-time expenses or recurring costs?

• Watch for trends. Small increases in expenses can add up over time.

• Don’t fixate on revenue alone. Profitability matters more than top-line growth.

  
  

Your P&L can guide smart decision-making, but only after you’ve confirmed that your books are clean and your balances are reliable. Starting with the balance sheet ensures that the profit and loss report reflects the true financial performance of your business.

Once those two reports are in harmony, you’ll have a firm grip on your numbers.