What is a profit and loss statement?

A profit and loss statement is one of the core financial documents any business needs to understand, yet many early-stage founders encounter it without a clear sense of what it shows, how to read it, or why it differs from looking at the balance in their bank account. Getting comfortable with the basics of a profit and loss statement is one of the most practical steps a founder can take.

A profit and loss statement — also called a P&L or income statement — summarises a business's revenues and expenses over a defined period, showing whether the business made a profit or a loss. It starts with total revenue, subtracts direct costs to arrive at gross profit, and then deducts operating expenses to show net profit or loss. Importantly, it does not show cash flow — a business can report a profit while experiencing cash difficulties if customers are slow to pay.

Reviewing your P&L regularly — monthly for most businesses — lets you spot revenue and cost trends before they become problems, and provides the context for good decisions on pricing, hiring, and investment. It is also one of the primary documents requested by lenders and investors. Our guide to reading a profit and loss statement covers the key line items UK founders need to understand.