Here's a free profit and loss statement template you can copy straight into a spreadsheet. It starts with your sales, takes off the cost of what you sold to give gross profit, then takes off running costs, interest and tax to show net profit. Fill in one column for this month and one for the year to date.
A profit and loss statement covers a stretch of time, like a month, a quarter or a year. That's what makes it different from a balance sheet, which is a snapshot of what the business owns and owes on a single day.
Your fill-in profit and loss template
| Line | This month | Year to date |
|---|---|---|
| Sales (revenue) | ||
| Cost of sales (stock, materials, direct costs) | ||
| Gross profit (sales minus cost of sales) | ||
| Operating expenses | ||
| Wages and salaries | ||
| Rent and utilities | ||
| Marketing and advertising | ||
| Software and subscriptions | ||
| Insurance | ||
| Accountancy and legal | ||
| Travel | ||
| Phone and internet | ||
| Bank and card processing charges | ||
| Depreciation | ||
| Other expenses | ||
| Total operating expenses | ||
| Operating profit (gross profit minus total operating expenses) | ||
| Interest paid | ||
| Profit before tax | ||
| Tax | ||
| Net profit |
Copy the table into Google Sheets or Excel and add a formula to each bold line, so the totals work themselves out. Rename or add expense lines to suit your business. A coach won't need a cost of sales line full of stock, and a shop might want separate lines for postage and packaging.
How to fill it in, line by line
- Pick your period. Choose the month you're reporting on and note your financial year start date, so the year to date column always begins in the same place.
- Sales. Add up everything you invoiced or took for that period. If you're registered for VAT or collect sales tax, leave the tax out, because it isn't yours. Check with your accountant if you're not sure how this applies to you.
- Cost of sales. Add the direct costs of what you sold: stock, materials, packaging, and freelancers you paid to deliver client work. Only include the cost of things that went out the door that period.
- Gross profit. Sales minus cost of sales. This line tells you whether your pricing works before any overheads.
- Operating expenses. Go through your bank statements and receipts and put each running cost on its line: wages, rent, marketing, software and so on. Don't put loan repayments here; only the interest part belongs on this report.
- Depreciation. If you've bought equipment that lasts several years, a slice of its cost goes here each period. Your accountant will tell you how to work it out.
- Operating profit. Gross profit minus total operating expenses. This is what the business earns from its day-to-day work.
- Interest. Interest on loans, overdrafts and business credit cards.
- Tax. If you run a limited company or corporation, put in an estimate of the tax on this period's profit. If you're a sole trader, the tax is usually personal, so many people leave this line blank and keep a separate tax pot.
- Net profit. What's left. Then add this month's figures to the year to date column.
If any line feels like guesswork, my plain-English guide to basic accounting terms covers what these words mean.
What the numbers tell you
A P&L isn't a form to fill in and forget. Once a month, sit down with it and ask three questions.
Am I charging enough for what I sell?
Divide gross profit by sales. That's your gross margin. If it's slipping month after month, your costs have gone up or your prices haven't kept pace. This is the first number I'd look at, because it tells you if every sale is pulling its weight.
Where is the money going?
Scan the operating expenses for anything that grew without you noticing. Software subscriptions are the usual suspect. A line you can't explain is a line worth looking at before next month.
Is it getting better or worse?
One month on its own tells you very little. Compare this month with last month, and with the same month last year if your business is seasonal. The year to date column helps here, because it smooths out a quiet week or a big one-off invoice.
Profit and loss account or income statement?
They're the same report with different names. In the UK, you'll usually see profit and loss account, and older UK accounts often call sales "turnover". In the US, it's normally called an income statement, and cost of sales is often written as cost of goods sold, or COGS. Operating profit can also appear as operating income. If you're reading accounts from the other side of the Atlantic, the order of the lines is much the same.
When to let software produce it
A spreadsheet works well when you're starting out and only have a handful of transactions. Once you're entering dozens of lines a month, accounting software is quicker and makes fewer mistakes. You connect your bank, tag each transaction once, and the profit and loss report builds itself for whatever dates you choose.
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- Xero is popular with small businesses and accountants in the UK, Australia and New Zealand, with a large range of add-on apps.
- QuickBooks is widely used in the US and the UK, with versions for sole traders and growing companies.
- FreeAgent is aimed at UK freelancers, sole traders and small limited companies, and some UK business bank accounts include it, so check yours.
- Wave is known for its free starting plan and is aimed mainly at small businesses in the US and Canada.
- Sage has been around for decades, is well known in the UK, and suits businesses that expect to grow into more complex accounts.
Plans and features change, so check each provider's current pricing page before you sign up. If you're choosing between the two big names, my Xero vs QuickBooks comparison goes into the differences, and my roundup of the best bookkeeping software for small businesses covers the wider field.
Make accounting software? See how to get it featured on this list.
One last thing. This template helps you understand your business, but it isn't tax advice. Tax rules depend on where you are and how your business is set up, so check with your accountant, HMRC or the IRS before you rely on it for a tax return.
Frequently asked questions
What should a profit and loss statement include?
Sales, cost of sales, gross profit, operating expenses, operating profit, interest, tax and net profit, all for a set period such as a month or a year.
How often should a small business do a P&L?
Monthly is a good habit. It's often enough to spot problems early, and a full year of monthly reports makes your year-end accounts much easier.
Is a profit and loss statement the same as an income statement?
Yes. Profit and loss account is the usual UK name, and income statement is the usual US name. The lines and the order are much the same.
Can I make a profit and loss statement in Excel or Google Sheets?
Yes. Copy the template above into a spreadsheet, add formulas to the total lines, and fill it in from your bank statements and invoices each month.
