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

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](https://www.brix.so/learn/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](https://www.brix.so/learn/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](https://www.brix.so/learn/gross-margin). |
| Operating expenses ([overhead](https://www.brix.so/learn/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](https://www.brix.so/learn/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._

> **What this P&L is saying**
>
> The business sold $1.4 million and kept $40,000, under 3 cents on the dollar. A single bad month wipes that out.
>
> Gross margin of 38.2% is where to look first. Field labor at 30% of revenue is the biggest line; if technicians are billing five hours out of eight, raising [technician utilization](https://www.brix.so/learn/technician-utilization) or prices is worth far more than cutting the phone bill.
>
> Overhead at 34.7% is heavy for the gross margin it has to live on. Either gross margin goes up (pricing, labor efficiency) or overhead comes down, or both. The [break-even calculator](https://www.brix.so/tools/break-even-calculator) shows how much revenue this cost structure needs.
>
> Maintenance plans are only 5.7% of revenue. Growing that line smooths cash flow and feeds service calls.

## 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](https://www.brix.so/learn/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](https://www.brix.so/learn/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](https://www.brix.so/learn/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](https://www.brix.so/tools/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](https://www.brix.so/learn/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](https://www.brix.so/learn/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.

BRIX keeps expenses categorized and syncs invoices and payments with QuickBooks, so when you open the P&L the revenue and job cost lines are current and in the right accounts.

- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

## 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.

## Related

- [What Is Cost of Goods Sold (COGS) for a Contractor?](https://www.brix.so/learn/cost-of-goods-sold)
- [What Is Gross Margin?](https://www.brix.so/learn/gross-margin)
- [What Is Net Profit Margin?](https://www.brix.so/learn/net-profit-margin)
- [What Is Overhead, and How Do Contractors Calculate It?](https://www.brix.so/learn/overhead)
- [What Is a Chart of Accounts?](https://www.brix.so/learn/chart-of-accounts)
- [Cash Flow for Contractors: Why Profitable Shops Run Out of Money](https://www.brix.so/learn/cash-flow-for-contractors)
- [Bookkeeping Checklist for Contractors (Weekly, Monthly, Year-End)](https://www.brix.so/learn/bookkeeping-checklist-for-contractors)
- [Break-Even Calculator for Service Businesses](https://www.brix.so/tools/break-even-calculator)
- [Bookkeeping for contractors that keeps your books tax-ready all year](https://www.brix.so/features/bookkeeping-taxes)
- [Contractor invoicing software that sends the invoice and chases the money](https://www.brix.so/features/invoicing-payments)

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Written by BRIX Editorial Team. Last updated 2026-10-12.
Canonical: https://www.brix.so/learn/profit-and-loss-statement