Deep Dive Into Your Construction Profit and Loss Statement (P&L) | Free Template!
Arguably one of the most important elements of running a successful construction business is keeping track of your income and expenses in a way that lets you measure your profitability and plan for your financial future.
Though it may sound simple, you’d be surprised just how many construction business owners violate the single, most important rule of running a profitable business – spending more than you earn.
This is where a profit and loss (P&L) statement comes into play. A construction P&L is a summary of your revenue and costs over a specific period that shows just how much money you have made or lost whilst in business.
It helps you identify trends, opportunities, and challenges in your business so that you can develop a system that generates profits in a predictable way. So, let’s cut to the chase and discuss just how you can use your P&L to your advantage!
What is a Construction Profit & Loss (P&L)?
Simply put, a construction P&L is a financial document that shows you the income and expenses of your construction business. In other words, it summarizes for you, in detail, how much money you have earned and how much money you have spent over a certain amount of time.
By looking at your P&L, you start to notice trends in spending and profits, which help you identify the aspects of your business that are bringing in the most money, and the ones that are lagging behind, such as:
- Labor costs
- Materials
- Permits
- Equipment rentals
- Overhead and administrative costs
You get the gist. It’s a lot. And it’s why a construction P&L statement can be inherently valuable to your business.
By comparing your revenue with the costs of spending, you’ll be able to start managing your business effectively, and you’ll be able to tell which changes you need to make so that the profits can come rolling in.
How Often Should You Look at Your P&L?
While there are no defined guidelines on how often you should check your construction P&L, like how you aren’t obliged to check your personal bank statements (particularly after some heavy expenses), we do recommend you check it out at least once a month to make sure you’re financially on track.
By doing so, you can monitor your financial performance and make the necessary adjustments before certain costs start racking up.
You might also want to look at your P&L more often if you’ve recently started working on a larger or more complex project that’s liable to break the budget. But, if you’re still unsure when to inspect your P&L, then why not try following our simple guidelines:
- Monthly: if you’re a new or small construction business, it can be easy to go over budget. Review your P&L monthly so that you can quickly rectify any potential issues and maintain the continuity of your business.
- Quarterly: if you’re a bigger construction company but don’t currently have any ongoing complex projects, then reviewing your P&L statement on a quarterly basis may be sufficient.
- Annually: regardless of how big or small your construction company is, you should always review your P&L on an annual basis as part of your overall financial reporting process.
What Goes On The Construction P&L?
A construction P&L is typically composed of multiple sections, including your revenue, cost of goods sold, gross profit, and general operating expenses. But, we’ll do you one better and break it down comprehensively so that you understand exactly how a P&L works.
- Revenue: the income your business receives from projects you successfully complete. This includes fees, billable hours, and materials sold. Basically, it’s a list of all the ways that money comes into your business.
- Cost of Goods Sold (COGS): how much it costs you to deliver the goods and services that you provide, such as the cost of materials, labor, subcontractors, permits, etc.
- Gross Profit: some fun math here, your gross profit is the difference between your revenue and COGS. This should be the money you have left over after paying off all running costs.
- General expenses: any indirect costs related to marketing and selling your goods, including general admin expenses such as paying salaries, legal fees, rent, and so on.
- Net income: the difference between your gross profit and the total operating expenses (general expenses), which shows you how much money you have left after paying your expenses.
See? It’s not too bad when you break the construction P&L into its consecutive parts. But don’t worry, if you still feel like you need more help, you can rely on us.
Example Spreadsheet of Construction P&L
We understand that some people learn better by using visuals, so we’ve created a mock spreadsheet for a fictional construction company that shows just what a construction P&L may look like.
You can access the template here.
As you can see, the spreadsheet above shows the construction company’s P&L for the month of January 2023. The company made a total of $36,750 in their first month of operations despite having a revenue of $166,089. This is because other costs had to be factored into their expenses.
Their profit margin, which is deducted through the ratio of net income to revenue, is 22%. This demonstrates that this business is working well, and is comfortably securing 20% profits per month of operation.
Get The Help of Experienced Construction Accountants
Creating and analyzing a construction P&L can be challenging and time-consuming, particularly if you’re new to the construction game and are unfamiliar with accounting principles and practices. But that’s why we’re here; to facilitate your business’s bloom.
Atlas Accounting Group is a team of experienced construction accountants with over two decades of experience serving construction clients across different sectors. Our love language is numbers, and so we know how to interpret and communicate the most intricate numerical details in a way that makes sense for you.
If you’re looking for an expert to help prepare and review your construction P&L, among other financial documents associated with your business, you can book a complimentary call with one of our team members anytime.
We’re here to help!
