Profit and Loss Statement
A financial report that summarizes a contractor's revenues, costs, and expenses during a specific period to determine overall profitability.
What is a Profit and Loss Statement?
A Profit and Loss Statement (P&L), also called an income statement, is a financial document that shows your contracting business's revenues, expenses, and net profit over a specific time period, typically monthly, quarterly, or annually.
For contractors, the P&L statement is essential for understanding business performance, making informed decisions, and identifying areas for improvement in profitability and cost control.
Key Components
Revenue Section
Gross Revenue: Total income from all completed projects and services.
Net Revenue: Gross revenue minus returns, discounts, or contract adjustments.
Cost of Goods Sold (COGS)
Direct costs associated with completing projects:
- Materials and supplies
- Direct labor wages and benefits
- Subcontractor payments
- Equipment rental for specific jobs
Operating Expenses
General business costs not directly tied to specific projects:
- Office rent and utilities
- Insurance premiums
- Marketing and advertising
- Vehicle expenses and fuel
- Professional services (accounting, legal)
- Administrative salaries
Net Profit
The final result after subtracting all expenses from total revenue.
Understanding P&L for Contractors
Gross Profit Margin
Calculated as (Revenue - COGS) ÷ Revenue × 100
This shows how much profit you make on direct project costs before accounting for overhead expenses.
Operating Profit Margin
Calculated as Operating Income ÷ Revenue × 100
This indicates profitability after all business expenses are considered.
Net Profit Margin
Final profit percentage after all expenses, taxes, and other costs.
Common P&L Categories for Contractors
Revenue Streams
- New construction projects
- Renovation and remodeling work
- Maintenance and repair services
- Emergency or after-hours work
Direct Costs
- Lumber, concrete, and building materials
- Plumbing, electrical, and HVAC supplies
- Tool and equipment purchases or rentals
- Jobsite labor costs
Indirect Costs
- General liability and workers' compensation insurance
- Vehicle maintenance and fuel
- Office supplies and software subscriptions
- Professional development and training
Using P&L Statements for Business Decisions
Project Profitability: Compare profit margins across different types of work to focus on most profitable services.
Cost Control: Identify expense categories that are growing faster than revenue.
Seasonal Planning: Understand revenue patterns to prepare for slower periods.
Growth Planning: Determine if the business can afford new equipment, vehicles, or employees.
Red Flags to Watch For
Declining Gross Margins: May indicate material costs are rising faster than pricing.
High Operating Expenses: Administrative costs consuming too much of total revenue.
Inconsistent Profitability: Large swings in monthly profits may indicate poor project management or pricing.
Negative Cash Flow: Expenses exceeding revenue, indicating potential cash flow problems.
Best Practices
- Review P&L statements monthly to identify trends early
- Compare current performance to previous periods
- Track key performance indicators like profit margins by project type
- Use P&L data to set realistic budgets and pricing strategies
- Share relevant financial information with key managers or partners
Tools and Software
- QuickBooks or similar accounting software
- Construction-specific financial management tools
- Spreadsheet templates for manual tracking
- Professional bookkeeping services for complex businesses
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