How to complete a Profit & Loss Statement

Banks require a Profit & Loss Statement to assess your business's ability to generate profit and cover debt service. Lenders review this income statement alongside your balance sheet and cash flow projections to determine creditworthiness and loan capacity.

- Monthly or annual sales invoices, receipts, and revenue records for the period you're reporting - Cost of goods sold documentation including inventory purchases, materials, direct labor, and freight expenses - Operating expense receipts covering rent, utilities, payroll, insurance, marketing, and administrative costs - Depreciation schedules for equipment and property if you're preparing an accrual-basis statement - Your business tax returns for the same period to ensure consistency between reported figures

1. Select your reporting period at the top of the form. Most lenders want monthly statements for the past twelve months plus year-to-date, or annual statements for the previous two to three years. 2. Choose your governing state now. State selection may affect how certain income and expense categories must be classified or disclosed, and some states have specific reporting requirements for licensed businesses. 3. Enter all revenue streams in the income section. Break out product sales, service income, and other revenue separately rather than combining them into one line. Total all revenue sources to calculate gross revenue. 4. List your cost of goods sold including direct materials, production labor, and freight-in. Subtract total COGS from gross revenue to arrive at gross profit. This margin is a critical metric lenders evaluate. 5. Itemize operating expenses by category: payroll and benefits, rent, utilities, insurance, marketing, professional fees, office supplies, and depreciation. Group related expenses together but keep categories distinct. 6. Sum all operating expenses. The form will subtract this total from gross profit to show operating income. 7. Add non-operating income or expenses such as interest income, interest expense, or one-time gains and losses below the operating income line. 8. Calculate net income by combining operating income with non-operating items. Review the bottom-line figure carefully as this drives debt-service coverage calculations.

- Underwriters compare your gross profit margin and net profit margin to industry benchmarks. Margins significantly below your sector average raise red flags about pricing power or cost control. - Avoid round numbers and ensure figures reconcile exactly to your tax returns. Discrepancies between your P&L and Schedule C or corporate return will stall underwriting and damage credibility. - Lenders calculate debt-service coverage by dividing net income plus depreciation plus interest expense by required annual loan payments. Ratios below 1.25 typically fail minimum standards.