Accounting

Reading Your P&L: What Owners Should Actually Look For

The numbers your accountant hands you each month. Here's how to read past the gross totals to the signals that matter.

By Harry Prabandham3 min · 5 slidesUpdated May 3, 2026

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A single month's P&L is mostly noise. Compare 3–6 months side by side to see direction.
Look at year-over-year for the same month — that controls for seasonality (Dec retail, summer slow seasons, fiscal year cycles).
Set a budget at the start of the year; every monthly P&L should be reviewed against budget, not in isolation.
If your accounting software doesn't show comparative columns by default, request it — single-column P&Ls are a missed opportunity.

Break revenue down by source (product line, service line, customer segment, channel) — top-line growth often masks shifting mix.
Track revenue per customer over time — declining ARPU with rising customer count can hide weakening fundamentals.
Recurring vs. one-time revenue — a great quarter built on a one-time deal isn't the same as a great quarter built on recurring growth.
Returns and refunds — booked as a revenue contra-account or as expense, depending on setup. Make sure you know which.

Gross margin = (Revenue − Cost of Goods Sold) / Revenue. This is the most diagnostic single number on the P&L.
Trending downward? Either prices are slipping, costs are creeping, or product mix is shifting toward lower-margin offerings.
Healthy gross margin varies by industry: SaaS 70–85%, professional services 40–60%, e-commerce 30–50%, food service 50–70%.
Make sure COGS is set up properly — labor that delivers the product/service belongs in COGS, not opex. Without this, gross margin is meaningless.

Group opex into meaningful categories: People, Marketing, Tech, Facilities, Professional Fees, Other.
Track each category as a % of revenue over time. Marketing as 20% of revenue is fine for some businesses, broken for others.
Watch for category drift — small recurring SaaS subscriptions become a big number if no one is managing them.
Owner comp and benefits: separate from regular payroll on the P&L for clarity (especially for S-corp owners with reasonable comp considerations).

Net income is an accounting calculation; it's not what hit the bank. Depreciation, accruals, and timing differences create gaps.
Always read the P&L alongside the cash flow statement and balance sheet. Profitable companies go bankrupt by ignoring cash.
Common gaps: high A/R growth (you booked the revenue, didn't collect cash); high inventory growth (you booked the cost as inventory, not COGS); large fixed-asset purchases (cash out, no immediate P&L impact).
If the P&L says profit but the bank balance is shrinking, run a cash flow statement and find the gap — usually it's working capital.
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