Most creative entrepreneurs have heard of the P&L or Profit & Loss statement, but few understand the P&L truths and myths that come with it. Your numbers can either confuse you or guide you, depending on how well you know what the P&L is telling you (and what it’s not).
You might glance at it once a month (or once a quarter, let’s be honest), see a number at the bottom, and move on. But that quick look rarely gives you the complete picture of what’s happening in your business.
Let’s break down the most common truths and myths about the P&L so you can stop guessing, stop feeling confused, and start using your numbers to build a business you can trust.
What Is a P&L?
The Profit & Loss statement, also known as the income statement, is a report that summarizes your business’s revenue and expenses over a specific period. It’s the most commonly reviewed report in small companies, but it’s also the one most often misused.
A basic P&L shows:
- Revenue (also called sales or income): The money coming into your business
- Cost of Goods Sold (COGS): What it costs to deliver your products or services
- Operating Expenses: Rent, software, payroll, marketing, and other related costs.
- Net Profit or Loss: What’s left after subtracting your expenses from your revenue
However, many business owners focus on a positive bottom line and assume that means everything’s fine. Not so fast.
P&L Truths and Myths Creative Entrepreneurs Fall For
Let’s debunk some of the biggest misunderstandings I hear all the time in client calls:
Myth #1: If my P&L shows a profit, I’m doing great.
Truth: You can show a profit on paper but have no cash in the bank. That’s because the P&L doesn’t account for debt payments, credit card spending, owner draws, or savings transfers.
Myth #2: If my P&L looks bad, I must be failing.
Truth: One-off month—or even a few—doesn’t mean your business is broken. Use your P&L to find trends, not shame yourself for short-term results.
Myth #3: The P&L includes everything necessary.
Truth: It doesn’t. You won’t see your loan balances, what you owe in taxes, or how much you’ve set aside for profit or owner’s pay unless you intentionally track them elsewhere.
Myth #4: It’s too complicated to understand.
Truth: The P&L is simpler than it looks. You need the right lens and language—and maybe a Clarity Call to walk through it with someone who gets you.
What the P&L Doesn’t Tell You (But You Still Need to Know)
Many business owners rely on their profit and loss (P&L) statement as their primary source of financial information. But that’s like reading only one chapter of a book. Here’s what your P&L doesn’t include:
- Cash Flow Timing: When money comes in vs. when bills are due
- Debt Service: Principal payments on loans or credit cards
- Savings Transfers: Money moved into separate Profit or Tax accounts
- Owner’s Pay Draws: Unless you run payroll, your pay may not show up clearly
- Profit First Allocations: You won’t see those unless you track them manually
That’s why I always say: P&L truth only works if you pair it with a cash review and balance sheet check.
How to Use Your P&L Statement for Strategic Growth
Here’s a practical guide for making your P&L part of your CEO habits:
1. Review it monthly, not just at tax time.
Set a calendar reminder to open your Profit & Loss report at the beginning of each month. Compare last month’s revenue and expenses to the month before. Look for patterns—not perfection.
2. Watch for expense creep.
Have your subscriptions multiplied? Is that new software delivering a return? Use your P&L to trim the fat and invest where it counts.
3. Combine it with your Balance Sheet.
You need both. The P&L shows what happened; the Balance Sheet shows what you have and what you owe.
4. Compare your Net Profit to your TAPs.
If you’re using Profit First, does your Net Profit reflect what’s being allocated to your Profit and Owner’s Pay accounts? If not, it’s time to adjust.
The P&L Is a Tool—Not a Report Card
It’s easy to feel shame or anxiety when looking at your numbers. But here’s the truth:
The P&L doesn’t judge you. It informs you.
Used correctly, it becomes one of your greatest assets, not because it tells you everything, but because it gives you a starting point for more intelligent, more intentional decisions.
You don’t need to be an accountant. You need a system and a consistent rhythm for reviewing it.
Ready to Feel Clarity Instead of Confusion?
This is where Profit First helps you go beyond the P&L.
With simple percentages (TAPs) and a money rhythm that includes reviewing your reports and your cash, you can:
- Build real savings
- Pay yourself with confidence
- Stop guessing what you can afford
- Start leading with clarity, not chaos
Venus’ Bottom Line
Your P&L is not a report card, it’s a tool for clarity. But only if you know how to use it.
You deserve more than a confusing spreadsheet. You deserve a system that helps you spot trends, track your progress, and take action, not just react.
That’s what I help clients do every day: use the P&L as a launchpad for more intelligent decisions, better paydays, and financial peace of mind.
I’m Venus Michael, Profit First Certified Bookkeeper at One21Accountability. I help creative entrepreneurs, consultants, and service providers understand their numbers and confidently lead their businesses.
👉 Want to decode your P&L with someone who speaks your language? Book a Discovery Call
