What a profit and loss statement shows
A profit and loss statement summarises your income and costs over a period (a month, quarter or year) to show your profit. It has a simple structure: income at the top, the direct cost of what you sold next (giving gross profit), then your operating expenses (giving net profit at the bottom). It answers the most important question: are you making money, and how much?
It matters because cash in hand is not profit. You can have money in the M-Pesa account and still be losing money, or be profitable but cash-strapped. A P&L cuts through that confusion by laying out income against all costs, so you see the real result.
For a Kenyan business, a P&L built from accurate books also feeds your KRA income tax return and shows whether each part of the business contributes. Once your sales and expenses are recorded properly, the P&L is just a calculation on that data.
How to build a profit and loss statement, step by step
Work top to bottom for the period.
- 1
Step 1: Total your income
Add up all sales and other income for the period. With recorded sales, this figure is accurate; reconstructing it from memory is not.
- 2
Step 2: Calculate cost of goods sold
Add the direct cost of the goods you sold (purchase cost of stock sold). For a service business, this is the direct cost of delivering the service.
- 3
Step 3: Find gross profit
Income minus cost of goods sold is your gross profit, what you made before running costs. This shows your margin on sales.
- 4
Step 4: Total operating expenses
Add rent, wages, transport, M-Pesa charges, utilities and other running costs for the period.
- 5
Step 5: Find net profit
Gross profit minus operating expenses is your net profit, the real bottom line. If it is negative, you are making a loss.
- 6
Step 6: Review and compare
Compare the P&L across periods. Rising costs or falling margins show up clearly, so you can act before they hurt.
Profit and loss mistakes
Confusing cash with profit
Money in the account is not profit. A P&L exists precisely to separate the two. Read profit, not just balances.
Forgetting cost of goods sold
Counting all income as profit ignores what the stock cost you. Subtract cost of goods sold to get true margin.
Missing expenses
Leaving out costs inflates profit on paper and misleads decisions. Include every operating expense.
Building it from memory
A P&L is only as good as the data. Without recorded sales and expenses, it is guesswork. Keep accurate books.
Never comparing periods
A single P&L is a snapshot; comparing periods reveals trends. Track it over time to catch problems.
A shop sees its real result
A shop owner in Nairobi judged success by the M-Pesa balance, which looked healthy. She assumed she was doing well.
A simple P&L told a different story: after the cost of goods sold and her full operating expenses, net profit was thin, and one product line was actually losing money once its costs were counted.
Seeing income against all costs let her fix it, drop the loss-making line and trim expenses, and her real profit grew. The P&L showed what the bank balance had hidden.
Without clean daily records, tax time turns into guesswork, financing applications stall, and you cannot tell a genuinely good month from a lucky one.
Veira turns every sale into an organised record and a clear report, so your numbers are ready for KRA, a lender or yourself.
How Veira gives you a profit and loss view
Because Veira records every sale and lets you track expenses and cost of goods, it can show your profit and loss in real time, income, gross profit and net profit, without you building a statement by hand. The data is already there and accurate.
You see your true result whenever you want, compare periods, and spot rising costs or weak lines early, and the same accurate figures feed your KRA return, all from your phone, from KES 2,999 a month.
Frequently asked questions
How do I make a profit and loss statement?
What is the difference between gross profit and net profit?
Why is cash not the same as profit?
How often should I make a P&L?
Does a P&L help with KRA tax?
Can software produce my profit and loss statement?
A profit and loss statement shows the truth a bank balance hides: whether you actually make money. Veira gives you that view in real time from your recorded sales and expenses, from KES 2,999 a month. See how Veira shows your real profit and book a free demo.