How to Read a Profit and Loss Statement (Contractor's Guide)

By BRIX Editorial Team · Updated October 12, 2026

A profit and loss statement (P&L, or income statement) shows a business's revenue, costs and profit over a period such as a month or year. Read it top down: revenue, minus cost of goods sold, gives gross profit; minus overhead gives operating profit; minus interest and other items gives net profit. The percentages matter more than the dollars.

Key takeaways

The P&L covers a period (a month, quarter or year). The balance sheet is a snapshot of one day. You need both.
Three profit lines matter: gross profit (after job costs), operating profit (after overhead) and net profit (after everything).
Read every line as a percentage of revenue and compare it to last month and last year. Trends beat single numbers.
A profitable P&L doesn't mean cash in the bank. See cash flow for contractors.
If job costs sit in overhead, gross margin is overstated and the P&L will mislead your pricing.

What's on a profit and loss statement?

P&L lines, top to bottom
Line	What it is	What to check
Revenue (sales, income)	What you billed (accrual) or collected (cash basis) for work in the period	Split by type: service, installs, maintenance agreements
Cost of goods sold	Direct job costs: materials, field labor and burden, subs, permits, rentals	Each as a % of revenue
Gross profit	Revenue − COGS	Gross margin % (gross profit ÷ revenue). See gross margin.
Operating expenses (overhead)	Office wages, rent, insurance, trucks, marketing, software	Overhead % of revenue; which lines grew
Operating profit	Gross profit − operating expenses	Is the core business making money before financing?
Other income and expense	Interest, gains or losses on selling equipment	Interest expense creeping up
Net profit (net income)	What's left	Net profit margin %; compare to your goal

Worked example: a plumbing company's P&L

Illustrative annual P&L for a six-truck plumbing company
Line	Amount	% of revenue
Service and repair revenue	$820,000	58.6%
Water heater and repipe installs	$500,000	35.7%
Maintenance plan revenue	$80,000	5.7%
Total revenue	$1,400,000	100%
Job materials	$360,000	25.7%
Field labor and burden	$420,000	30.0%
Subcontractors	$60,000	4.3%
Permits and equipment rental	$25,000	1.8%
Total cost of goods sold	$865,000	61.8%
Gross profit	$535,000	38.2%
Office and dispatch wages	$140,000	10.0%
Owner salary	$90,000	6.4%
Vehicles: fuel, repairs, insurance	$72,000	5.1%
Insurance (liability, workers' comp office share)	$38,000	2.7%
Rent and utilities	$36,000	2.6%
Marketing	$56,000	4.0%
Software, phones, office	$24,000	1.7%
Depreciation	$30,000	2.1%
Total operating expenses	$486,000	34.7%
Operating profit	$49,000	3.5%
Interest expense	$9,000	0.6%
Net profit	$40,000	2.9%

Example numbers, not benchmarks. Percentages are rounded.

How do you read a P&L in five minutes?

1
Check the basis and the period.
Cash or accrual, and which dates. A cash-basis P&L for a month with slow collections can look like a loss on profitable work. See accrual vs. cash accounting.
2
Read gross margin first.
Gross profit ÷ revenue. Compare to last month, the same month last year and your pricing target. If it dropped, find out which COGS line grew.
3
Scan overhead as a percentage.
Fixed costs should shrink as a share of revenue when sales grow. If overhead % is rising with revenue, something is scaling that shouldn't.
4
Look at net profit and ask where the cash went.
If the P&L says $40,000 profit and the bank account is flat, check accounts receivable, loan principal payments, equipment purchases and owner draws, none of which appear fully on the P&L.
5
Compare columns.
Run the P&L with a prior-period comparison and, if you use classes or projects, by division or job. One number tells you little; a trend tells you what to fix.

What a P&L looks like by trade

Where each trade's P&L tends to be won or lost
Trade	Lines that drive the result	Useful split
HVAC	Equipment cost on replacements; labor efficiency on service; seasonal swings	Service vs. replacement vs. maintenance agreements
Plumbing	Field labor; materials on repipes and water heaters	Service vs. installs
Electrical	Labor and copper; commercial subcontract margins	Residential service vs. commercial contracts
Roofing	Materials and crew cost per square; sales commissions; insurance supplements	Retail vs. insurance vs. commercial
General contractor	Subcontractor costs; change orders; profit fade on long jobs (see WIP report)	By project
Landscaping	Crew labor; equipment; seasonality	Maintenance vs. installs vs. snow
Cleaning	Labor as the dominant cost; supplies	Recurring commercial vs. one-time residential

P&L vs. balance sheet vs. cash flow statement

Statement	Answers	Period
Profit and loss	Did we make money?	A span of time
Balance sheet	What do we own and owe right now?	One date
Cash flow statement	Where did the cash come from and go?	A span of time

Loan principal, equipment purchases, owner draws and customer payments on old invoices move cash without touching the P&L. Depreciation reduces profit without moving cash. That's why a profitable year can end with less money in the bank, and why the cash flow runway calculator uses bank balances, not P&L figures.

How do you run a P&L in QuickBooks Online?

Open Reports and run the Profit and Loss report. Set the period, choose cash or accrual, and add a comparison column for the previous period or the same period last year. If you've turned on classes or projects, display columns by class or customer to see profit by division or job. The report is only as good as the chart of accounts behind it: if job costs are mixed into expenses, fix the accounts before you trust the gross margin. The bookkeeping checklist for contractors covers the month-end steps that make the report reliable.

Red flags on a contractor's P&L

Gross margin drifting down month after month: prices haven't kept up with labor and material costs.
No gross profit line at all: job costs are in overhead and the P&L can't tell you if jobs are priced right.
Big "Miscellaneous" or "Ask my accountant" balances: transactions aren't being categorized.
Revenue up, net profit flat: overhead is growing as fast as sales.
Profit on paper, overdraft in the bank: collections or overbilling problems. Check A/R and the WIP report.
Owner not paid: if the owner's wage isn't on the P&L, the profit is overstated by whatever the owner should be earning.

Frequently asked questions

What is the difference between a P&L and an income statement?

Nothing. Profit and loss statement, income statement and statement of operations are different names for the same report: revenue, costs and profit over a period.

How often should a contractor look at the P&L?

Monthly, within a couple of weeks after the month closes, with a comparison to the prior month and the same month last year. Seasonal trades should also compare year-to-date totals so one slow month isn't over-read.

What is a good net profit margin for a contractor?

It varies by trade, size and whether the owner's pay is on the P&L, so there isn't one right number. Put a fair owner salary in overhead first, then judge net margin against your own history and your goals.

Why does my P&L show a profit when I have no cash?

Profit and cash move at different times. Customers may not have paid yet, you may have bought equipment or paid down loans (which don't show as expenses), or you took owner draws. Compare the P&L to your bank balance and A/R aging to find the gap.

Should owner pay be on the P&L?

For a true picture, yes. If you're an S corporation, your salary is already an expense. If you're a sole proprietor or single-member LLC, draws aren't expenses, so add a line for what you'd pay someone to do your job when you evaluate profitability.

What is gross profit vs. net profit?

Gross profit is revenue minus direct job costs. Net profit is what's left after you also subtract overhead, interest and other expenses. Gross profit tells you whether jobs are priced right; net profit tells you whether the business is.