Basics of Profit & Loss Sheet

Basics of Profit & Loss Sheet


A Profit & Loss sheet is really nothing more than a list of all your income minus a list of all your expenses and the remainder is either a profit (if the remainder is positive) or a loss (if the remainder is negative). This can become as complicated as you like, or better yet, as simple as you like.

Some software programs or spreadsheets will call this an Income Statement or an Income & Expenses Statement.

Here is an Actual Income Statement I turned into my CPA for my 2020 taxes.

As you can easily see, this is a simple business and so I used a simple Excel spreadsheet that I made in just minutes. On the left is all the income. On the right are all the expenses.

For the property management firm I own, the Profit and Loss statement is five pages long. That is because I used the NARPM standardized Chart of Accounts that I had loaded into QuickBooks. My property management company has many different avenues of income and many, many more places we create expenses and I want to be able to track all of that in great detail.

Information is Power
With a Profit and Loss statement that is structured the same, year in and year out, you can begin to make better and better decisions as the years go by. Benefits include:

  • Tracking your highest/lowest income streams in your given business to decide which to expand and which to jettison.
  • Track your labor and recognize when you can afford more help or better pay/benefits for the people you have.
  • You can see trends from month to month and year to year. What is doing better? What isn't? When are we busier (or slower) than our average?
  • Keeping a tight P&L from month to month makes tax season easier for you and your tax preparer, and therefore less expensive.

If you are just starting out in business, I would do a little search to see if there is a "best practices" Profit and Loss sheet for your industry. In real estate I have a best practices sheet from Keller Williams and for property management I have one from NARPM. In both cases, they are just Profit & Losses wherein the industry said "Let's use the same terms or account numbers so we can compare and contrast." These formats for a P&L are called a Chart of Accounts.

While this is not an endorsement, has different Profit & Loss templates for free and for fee, as does RocketLawyer. If your business is a little more complex or you are ready to go to another level of tracking, I would highly recommend QuickBooks. It's not easy to learn but it's not hard, either.

Or, if you are rolling in cash you can hire a bookkeeper or an accountant to help you with tracking your Income and Expenses. Whatever you choose, visit your Profit & Loss a minimum of one time a month. Your future-self will thank you.

Would it be helpful if we had a live workshop on building your Profit & Loss? If so, contact me and I'll notify you when one is scheduled.

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