{"id":80446,"date":"2022-12-12T11:38:53","date_gmt":"2022-12-12T19:38:53","guid":{"rendered":"https:\/\/honeybook.site.strattic.io\/?p=80446"},"modified":"2026-02-19T11:33:11","modified_gmt":"2026-02-19T19:33:11","slug":"profit-and-loss-statement","status":"publish","type":"post","link":"https:\/\/www.honeybook.com\/blog\/profit-and-loss-statement","title":{"rendered":"Profit and loss statements: A guide for small businesses"},"content":{"rendered":"\n<p class=\"has-text-align-center\"><em>Learn the basics of a profit and loss statement, a foundational financial document for independent businesses.<\/em><\/p>\n\n\n\n<p>As a creative service-based small business owner, you have multiple moving parts to manage: client outreach, acquisition, progress check-in appointments, and getting paid after the project is done. Without understanding your profit and loss statement (P&amp;L), though, all that activity lacks the financial context needed to make informed decisions.<\/p>\n\n\n\n<p>In this article, you\u2019ll learn what a profit and loss statement is, plus how to use it to make strategic cuts to improve your financial health.<\/p>\n\n\n\n<p><strong>Jump to:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"#details\">What\u2019s a profit and loss statement?<\/a><\/li>\n\n\n\n<li><a href=\"#types\">Types of profit and loss statements<\/a><\/li>\n\n\n\n<li><a href=\"#interpret\">How to interpret a profit and loss statement<\/a><\/li>\n\n\n\n<li><a href=\"#profit\">How profit and loss statements fit into financial reporting<\/a><\/li>\n\n\n\n<li><a href=\"#create\">How to create a profit and loss statement<\/a><\/li>\n\n\n\n<li><a href=\"#example\" type=\"internal\" id=\"#example\">Example of a profit and loss statement<\/a><\/li>\n\n\n\n<li><a href=\"#questions\">FAQs<\/a><\/li>\n<\/ul>\n\n\n\n<a id=\"details\"><\/a>\n\n\n\n<h2 class=\"wp-block-heading\">What\u2019s a profit and loss statement?<\/h2>\n\n\n\n<p>A P&amp;L, or income statement, is a financial document that provides a snapshot of a company\u2019s revenue and expenses. Simply put, your P&amp;L shows whether your business is profitable over a specified period of time.&nbsp;<\/p>\n\n\n\n<p>Typical P&amp;Ls cover a fiscal year. But you can have yours cover a shorter or longer period, depending on your accounting cycle.&nbsp;<\/p>\n\n\n\n<p>As long as you\u2019re consistent, you can experiment with different ways to itemize your revenue and expenses. For example, you can break down the expenses into four categories:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Cost of goods sold (COGS):<\/strong> This includes the cost of materials and labor to deliver your service, such as raw materials, direct labor related to producing or selling the goods, or packaging. If a cost isn\u2019t directly linked to a specific item, like utilities or common marketing costs, it\u2019s best to not include it in COGS.<\/li>\n\n\n\n<li><strong>Operating expenses:<\/strong> Daily expenses unrelated to a specific item fall under this category. These costs support the production and distribution of your goods and services.<\/li>\n\n\n\n<li><strong>Depreciation and amortization:<\/strong> The gradual \u201cwear and tear\u201d expense associated with owning capital equipment or intangible assets fits in this category. This includes things like software licenses, copyrights for creative small businesses, and any equipment purchased for long-term use.\u00a0<\/li>\n\n\n\n<li><strong>Interest expense:<\/strong> Any interest accrued on an outstanding loan will be included here.\u00a0<\/li>\n<\/ul>\n\n\n\n<p>Itemizing your income is more straightforward:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Operating income:<\/strong> This is the income created by the business\u2019s core operations before taxes and interests, excluding all non-operating expenses.<\/li>\n\n\n\n<li><strong>Net income:<\/strong> Also called net profit or the \u201cbottom line,\u201d net income is the final profit after deducting all expenses, including taxes, interest, and non-operating costs.<\/li>\n<\/ul>\n\n\n\t\t<div data-elementor-type=\"section\" data-elementor-id=\"88924\" class=\"elementor elementor-88924\" data-elementor-post-type=\"elementor_library\">\n\t\t\t<div class=\"elementor-element elementor-element-99ad397 e-con-full cta_click e-flex e-con e-parent\" data-id=\"99ad397\" data-element_type=\"container\" data-e-type=\"container\" data-settings=\"{&quot;background_background&quot;:&quot;classic&quot;}\">\n\t\t<div class=\"elementor-element elementor-element-ec10187 e-con-full e-flex e-con e-child\" data-id=\"ec10187\" data-element_type=\"container\" data-e-type=\"container\">\n\t\t\t\t<div class=\"elementor-element elementor-element-c538a76 elementor-widget elementor-widget-image\" data-id=\"c538a76\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img fetchpriority=\"high\" decoding=\"async\" width=\"404\" height=\"740\" src=\"https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2023\/07\/cta-payments-banner-merino.png\" class=\"attachment-medium_large size-medium_large wp-image-88479\" alt=\"\" srcset=\"https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2023\/07\/cta-payments-banner-merino.png 404w, https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2023\/07\/cta-payments-banner-merino-164x300.png 164w\" sizes=\"(max-width: 404px) 100vw, 404px\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t<div class=\"elementor-element elementor-element-0d64de4 e-con-full e-flex e-con e-child\" data-id=\"0d64de4\" data-element_type=\"container\" data-e-type=\"container\">\n\t\t\t\t<div class=\"elementor-element elementor-element-8a918e8 elementor-widget elementor-widget-heading\" data-id=\"8a918e8\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t\t<span class=\"elementor-heading-title elementor-size-default\">Get the free profit &amp; loss template<\/span>\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-dea38c1 elementor-widget elementor-widget-text-editor\" data-id=\"dea38c1\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<p>Use our free profit &amp; loss template to track revenue and expenses.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-7cb141f click-profit-loss elementor-widget elementor-widget-button\" data-id=\"7cb141f\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"button.default\">\n\t\t\t\t\t\t\t\t\t\t<a class=\"elementor-button elementor-button-link elementor-size-sm\" href=\"#\">\n\t\t\t\t\t\t<span class=\"elementor-button-content-wrapper\">\n\t\t\t\t\t\t\t\t\t<span class=\"elementor-button-text\">Get the template<\/span>\n\t\t\t\t\t<\/span>\n\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\n\n\n\n<a id=\"types\"><\/a>\n\n\n\n<h2 class=\"wp-block-heading\">Types of profit and loss statements<\/h2>\n\n\n\n<p>Not every business tracks money the same way\u2014and that\u2019s by design. The way you get paid, how long projects run, and when expenses hit your account all influence how you should measure profitability.<\/p>\n\n\n\n<p>That\u2019s why P&amp;Ls typically fall into two categories: cash and accrual methods. Each offers a different lens on your finances, depending on how your business operates.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Cash profit and loss statement<\/h3>\n\n\n\n<p>Also known as the cash accounting method, this statement is the simplest way to account for the cash you receive or pay. When money comes into the business account, you record it as revenue. When you use the money to pay for something, you record it as an expense.&nbsp;<\/p>\n\n\n\n<p>Because of this method\u2019s simplicity, it\u2019s best suited for <a href=\"https:\/\/www.honeybook.com\/blog\/profit-and-loss-for-self-employed\">independent professionals<\/a> and small service businesses with straightforward pricing and immediate or short payment cycles.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Accrual profit and loss statement<\/h3>\n\n\n\n<p>Instead of recording cash when it lands in your account, the accrual accounting method records revenue as it\u2019s earned, including money to be received in the future. If you use this method, you\u2019ll account for that income when you perform the service or deliver the project, not when the client pays you. Expenses are also recorded when they\u2019re incurred.&nbsp;<\/p>\n\n\n\n<p>This method is better suited for longer projects, invoices with delayed payment terms, or businesses that have multiple contracts running simultaneously.<\/p>\n\n\n\n<a id=\"interpret\"><\/a>\n\n\n\n<h2 class=\"wp-block-heading\">How to interpret a profit and loss statement<\/h2>\n\n\n\n<p>In addition to tracking the profitability of your business over time, a P&amp;L statement can also help allocate resources and determine how to price your product and services.<\/p>\n\n\n\n<p>Though for many creative small businesses it may seem like a \u201cnecessary evil,\u201d a P&amp;L statement does the heavy lifting when you apply for loans or credit lines. A well-structured P&amp;L can also prevent headaches with the IRS during tax season.<\/p>\n\n\n\n<a id=\"profit\"><\/a>\n\n\n\n<h2 class=\"wp-block-heading\">How profit and loss statements fit into financial reporting<\/h2>\n\n\n\n<p>As part of a broader system, a statement of profit and loss helps service-based business owners evaluate how their work translates into financial performance. Other common financial statements include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Balance sheets:<\/strong> Show what your business owns (assets), owes (liabilities), and retains as equity at a specific point in time.<\/li>\n\n\n\n<li><strong>Cash flow statements:<\/strong> Track how cash moves in and out of your business.<\/li>\n\n\n\n<li><strong>Statements of changes in equity:<\/strong> Detail changes in ownership equity; typically only relevant for businesses with investors or shareholders.<\/li>\n<\/ul>\n\n\n\n<p>For most creative service-based small businesses, these additional reports are often limited in value early on. That\u2019s why a profit and loss statement is especially important, as it shows whether your work is financially sustainable.\u00a0<\/p>\n\n\n\n<a id=\"create\"><\/a>\n\n\n\n<h2 class=\"wp-block-heading\">How to create a profit and loss statement<\/h2>\n\n\n\n<p>There\u2019s no one-size-fits-all approach to creating a P&amp;L, but the easiest way is to list all your revenue at the top of the document, while your expenses appear at the bottom.<\/p>\n\n\n\n<p>Templates and accounting software can generate a P&amp;L in minutes. But knowing what goes into it is what helps you actually understand your numbers and use them to make decisions.&nbsp;<\/p>\n\n\n\n<p>Before getting started, decide which time period you want your P&amp;L statement to cover. Then, focus on these core components:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>List your revenue:<\/strong> Include all income earned during the selected period, across every service, project, or product you sold.<\/li>\n\n\n\n<li><strong>List your expenses:<\/strong> Group costs into three categories\u2014COGS, operating expenses, and non-operating expenses. For service-based businesses, COGS typically includes the direct costs tied to delivering your work.<\/li>\n\n\n\n<li><strong>Figure out your net income:<\/strong> Subtract total expenses from total revenue. The final number shows whether you operated at a profit, a loss, or broke even during that time period.<\/li>\n<\/ol>\n\n\n\n<p><strong><em>Track your finances with less effort. See how your profit and loss perform each month with HoneyBook. <\/em><\/strong><a href=\"https:\/\/www.honeybook.com\/product\/automations\"><strong><em>Try it for free.<\/em><\/strong><\/a><strong><em><\/em><\/strong><\/p>\n\n\n\n<a id=\"example\"><\/a>\n\n\n\n<h2 class=\"wp-block-heading\">Example of a profit and loss statement<\/h2>\n\n\n\n<p>To help you get a better feel for the P&amp;L statement format, we\u2019ve created a P&amp;L for a hypothetical small business, Lunar Lens Photography.<\/p>\n\n\n\n<p>Lunar Lens Photography\u2014Profit and Loss Statement (2025)<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>Category<\/strong><\/td><td><strong>Amount (USD)<\/strong><\/td><\/tr><tr><td><strong>Revenue<\/strong><\/td><td><\/td><\/tr><tr><td>Client photography sessions<\/td><td>$72,000<\/td><\/tr><tr><td>Prints and digital add-ons<\/td><td>$8,000<\/td><\/tr><tr><td><strong>Total revenue<\/strong><\/td><td>$80,000<\/td><\/tr><tr><td><strong>Expenses<\/strong><\/td><td><\/td><\/tr><tr><td>Equipment and gear<\/td><td>$6,500<\/td><\/tr><tr><td>Editing software subscriptions<\/td><td>$1,200<\/td><\/tr><tr><td>Website and hosting<\/td><td>$900<\/td><\/tr><tr><td>Marketing and advertising<\/td><td>$3,500<\/td><\/tr><tr><td>Travel and mileage<\/td><td>$4,000<\/td><\/tr><tr><td>Insurance<\/td><td>$1,800<\/td><\/tr><tr><td>Education and workshops<\/td><td>$1,200<\/td><\/tr><tr><td>Office and admin expenses<\/td><td>$2,100<\/td><\/tr><tr><td><strong>Total expenses<\/strong><\/td><td>$21,200<\/td><\/tr><tr><td><strong>Net profit<\/strong><\/td><td>$58,800<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Create and track profit and loss statements with HoneyBook<\/h2>\n\n\n\n<p>HoneyBook is an AI-powered business management system for small businesses and independent professionals who want clearer, more actionable financial insights. By combining payments, invoicing, and financial reporting in one place, it makes tracking your profits and losses simpler and more useful.<\/p>\n\n\n\n<p>With HoneyBook, automations track payments as they\u2019re received, while online invoices let you send branded invoices and streamline follow-ups without extra effort. HoneyBook Finance monitors both income and expenses, integrates with QuickBooks, and even includes a tax hub to help you stay organized year-round.&nbsp;<\/p>\n\n\n\n<p><strong><em>Start tracking your finances with less work. See how your profit and loss perform each month inside HoneyBook. <\/em><\/strong><a href=\"https:\/\/app.honeybook.com\/signup\"><strong><em>Try it for free.<\/em><\/strong><\/a><\/p>\n\n\n\n<div class=\"aligncenter wp-block-ugb-container ugb-container ugb-6bb1d93 ugb-container--v2 ugb-container--design-basic ugb-main-block\"><style>.ugb-6bb1d93-wrapper.ugb-container__wrapper{border-radius:12px !important;background-image:url(https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2023\/03\/Banner-CTA-Background2.jpg)}.ugb-6bb1d93-wrapper.ugb-container__wrapper:before{opacity:0.5}<\/style><div class=\"ugb-inner-block\"><div class=\"ugb-block-content\"><div class=\"ugb-container__wrapper ugb-6bb1d93-wrapper ugb--has-background-overlay\"><div class=\"ugb-container__side\"><div class=\"ugb-container__content-wrapper ugb-6bb1d93-content-wrapper\">\n<h2 class=\"wp-block-heading has-text-align-center\"><strong>Start tracking your finances with less work<\/strong><\/h2>\n\n\n\n<p class=\"has-text-align-center\">See how your profit and loss performs each month inside HoneyBook.<\/p>\n\n\n\n<div class=\"wp-block-ugb-button ugb-button-wrapper ugb-9def6fd ugb-main-block\"><style>.ugb-9def6fd .ugb-button1{background-color:#000000}.ugb-9def6fd .ugb-button1 .ugb-button--inner,.ugb-9def6fd .ugb-button1 svg:not(.ugb-custom-icon){color:#ffffff !important}<\/style><div class=\"ugb-inner-block\"><div class=\"ugb-block-content\"><div class=\"ugb-button-container\"><a class=\"ugb-button1 ugb-button ugb-button--size-normal\" href=\"https:\/\/www.honeybook.com\/online-payment-software\" target=\"_blank\" rel=\"noopener noreferrer\" title=\"\"><span class=\"ugb-button--inner\">Try it for free<\/span><\/a><\/div><\/div><\/div><\/div>\n<\/div><\/div><\/div><\/div><\/div><\/div>\n\n\n\n<a id=\"questions\"><\/a>\n\n\n\n<h2 class=\"wp-block-heading\">FAQs<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">What\u2019s the difference between a profit and loss statement and a balance sheet?<\/h3>\n\n\n\n<p>A P&amp;L shows how much money a business earned and spent over a period of time, while a balance sheet shows what the business owns and owes at a single point in time. Simply put, a P&amp;L statement measures performance, while a balance sheet shows the company\u2019s financial position.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Is a profit and loss statement the same as an income statement?<\/h3>\n\n\n\n<p>Yes, profit and loss statements and income statements are the same financial document. Both summarize a business\u2019s revenue, expenses, and net profit or loss over a specific time period.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Are all businesses required to prepare P&amp;L statements?<\/h3>\n\n\n\n<p>Not all businesses are legally required to prepare P&amp;L statements, but most businesses need one for taxes, loans, and financial planning. Even sole proprietors and freelancers benefit from using a P&amp;L statement to track profitability and make informed decisions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Can I do the profit and loss statement for my business or do I need an accountant?<\/h3>\n\n\n\n<p>You can create a profit and loss statement yourself using accounting software or a spreadsheet, especially for a small or service-based business. An accountant may be helpful for complex finances, taxes, or compliance, but working with a professional isn\u2019t required to prepare a basic P&amp;L statement.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Learn the basics of a profit and loss statement, a foundational financial document for independent businesses. As a creative service-based small business owner, you have multiple moving parts to manage: client outreach, acquisition, progress check-in appointments, and getting paid after the project is done. Without understanding your profit and loss statement (P&amp;L), though, all that [&hellip;]<\/p>\n","protected":false},"author":801,"featured_media":80450,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[26],"tags":[350,195,197,493],"class_list":["post-80446","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance-tips","tag-bookkeeping","tag-finances","tag-money-management","tag-profitability"],"acf":[],"featured_image_urls_v2":{"full":["https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2022\/12\/profit-and-loss-feature.jpg",2000,1548,false],"thumbnail":["https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2022\/12\/profit-and-loss-feature-150x150.jpg",150,150,true],"medium":["https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2022\/12\/profit-and-loss-feature-300x232.jpg",300,232,true],"medium_large":["https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2022\/12\/profit-and-loss-feature-768x594.jpg",768,594,true],"large":["https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2022\/12\/profit-and-loss-feature-1024x793.jpg",1024,793,true],"1536x1536":["https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2022\/12\/profit-and-loss-feature-1536x1189.jpg",1536,1189,true],"2048x2048":["https:\/\/www.honeybook.com\/blog\/wp-content\/uploads\/2022\/12\/profit-and-loss-feature.jpg",2000,1548,false]},"post_excerpt_stackable_v2":"<p>Learn the basics of a profit and loss statement, a foundational financial document for independent businesses. As a creative service-based small business owner, you have multiple moving parts to manage: client outreach, acquisition, progress check-in appointments, and getting paid after the project is done. Without understanding your profit and loss statement (P&amp;L), though, all that activity lacks the financial context needed to make informed decisions. In this article, you\u2019ll learn what a profit and loss statement is, plus how to use it to make strategic cuts to improve your financial health. Jump to: What\u2019s a profit and loss statement? Types&hellip;<\/p>\n","category_list_v2":"<a href=\"https:\/\/www.honeybook.com\/blog\/category\/finance-tips\" rel=\"category tag\">Finance tips<\/a>","author_info_v2":{"name":"Gino R. 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