More Than Just Numbers: Understanding Your Income Statement

Last week we talked about how your balance sheet can be a powerful planning tool – but now it’s time to turn our attention to its financial sibling: the income statement.

Also known as a profit and loss statement (P&L), the income statement often gets the most attention because it answers one of the most important questions for any business: “Did we make money?”

But it’s more than just a report card. When used correctly, your income statement becomes a diagnostic tool, a decision-making guide, and even a growth roadmap.

Let’s break it down and show you how to turn this essential report into a strategic insight.

Let’s go!

What is an Income Statement?

Here’s the basic formula it follows: Revenue – Expenses = Net Income

It starts with the money coming in and subtracts all the costs of doing business to show whether you’re operating in the black – or bleeding red.

 

But that’s just the surface.

The Real Value Lies in the Details

Your income statement can answer some key planning questions if you know where to look:

  1. Where is your revenue really coming from?
    1. Are all your products or services profitable?
    2. Which income streams are growing – and which are shrinking?

Planning Tip: Break revenue down by category or segment to identify your

top-performing services and your potential dead weight.

  1. Are your costs under control?
    1. Watch for rising costs of goods sold (COGS) or operating expenses that are outpacing revenue growth.
    2. Is payroll growing faster than productivity?
    3. Are marketing or software costs creeping up?

Planning Tip: Track expenses as a percentage of revenue over time. A sudden jump in

spending might signal a need for process or vendor reviews.

  1. Is your pricing working?
    1. Strong revenue with weak net income? Your margins might be too thin.
    2. High profit on paper but cash flow issues? You may be underestimating overhead or timing mismatches.

Planning Tip: Work with your CPA to analyze gross margin and net profit margin – they’re key indicators of pricing health and overall efficiency.

Use It to Set (and Adjust) Business Goals 

When you understand your income statement, you can:

  • Set realistic sales goals based on historical performance.
  • Build budgets that reflect actual cost patterns.
  • Identify seasonal trends to plan inventory, staffing, and marketing pushes.
  • Spot early warning signs of financial strain – before they show up on your balance sheet.

The Bottom Line 

Your income statement is more than a performance summary – it’s a strategic compass.

Used alongside your balance sheet, it gives you a full picture of your financial health and helps you make confident, informed decisions.

So instead of glancing at it once a quarter, take a little time to dig in. Get familiar with what’s behind the numbers. And if you’re not sure where to start?

You guessed it – talk to your CPA. We love turning statements into strategy.