How to read your profit and loss in 10 minutes

Your profit and loss statement (P&L) shows the money your business earned in a period, usually a month, and what it cost to earn it. Accountants sometimes call it the income statement. You don't need every line to get value from it. Start with these five, in this order.

1. Revenue

Revenue is everything you sold in the month, before any costs. Compare it with the same month last year rather than last month, because many UAE businesses are seasonal. Summer slows some businesses down, and Ramadan shifts the pattern for others.

2. Cost of sales

These are the costs that rise and fall with each sale: the stock you bought, ingredients, delivery fees, or a freelancer's hours on a client job. Revenue minus cost of sales is your gross profit.

3. Gross margin

Divide gross profit by revenue. Watch this number more closely than any other. When it falls, the cause is usually a supplier raising prices or too many discounts.

4. Operating costs

Rent, salaries, marketing, software and everything else it takes to keep the doors open. These don't move much with sales, so they hurt most in a slow month. Look for any line that grew faster than revenue over the last three months.

5. Net profit

What's left after everything. A business can show a healthy gross margin and still make a loss here if its overheads are too high. If net profit is falling while revenue grows, go back to step 4.

A ten-minute monthly routine

1. 1Put this month next to the same month last year.
2. 2Write down your gross margin and compare it with the last three months.
3. 3Pick the operating cost that grew the most and ask why.
4. 4Note one thing to change before next month.

Once your accounting software is connected, Altaligence makes this comparison for you every day and points out the line that moved.