Quick answer
A profit and loss statement (P&L, also called an income statement) lists a business's income and expenses over a period, usually a financial year or year to date, and shows what's left as profit or loss. Lenders use it to judge whether the business earns enough to repay a loan, looking at revenue trends, gross margin, net profit and costs that can be added back.
Key points
- Shows income, costs and profit over a period, not the cash in the bank
- Lenders focus on revenue trend, gross margin, net profit and add-backs
- A year-to-date P&L from your accounting software bridges an old tax return
- Figures exclude GST, so they won't match bank deposits for a GST-registered business
Your P&L answers one question: over this stretch of time, did the business make money? Income goes at the top, costs come out line by line, and the bottom line is profit or loss. It’s the first financial report most lenders open, and the one they’ll read most closely.
What’s on a profit and loss statement
The layout varies with your accounting software, but the logic is always the same.
- Revenue or turnover: sales for the period, excluding GST if you’re registered.
- Cost of sales: what it directly cost to make or buy what you sold, such as stock, materials and subcontractors.
- Gross profit: revenue minus cost of sales.
- Operating expenses: wages, rent, insurance, marketing, software, vehicles.
- Depreciation and interest: non-cash wear on assets and the cost of borrowing.
- Net profit: what remains, before or after tax.
It sits alongside the balance sheet, which shows what the business owns and owes on a single date, and the cash flow statement, which tracks actual money in and out.
The lines a lender reads first
The revenue trend. Is turnover growing, steady or slipping compared with last year? A lender will often ask for the prior year and a year-to-date P&L side by side.
Gross margin. It shows whether pricing covers direct costs. A margin far out of line with your industry raises questions. The ATO publishes small business benchmarks for about 100 industries, built around ratios like cost of sales to turnover, and uses them to spot businesses reporting figures that look unusual. Lenders know these ranges too.
Net profit and add-backs. Net profit is the starting point, not the final word. Lenders add back costs that are non-cash or won’t continue, then compare the result with proposed repayments, often using a debt service coverage ratio.
Why it won’t match your bank statements
Owners are often caught out when a lender lines up the P&L against bank statements. If you’re registered for GST, turnover on the P&L excludes GST, but the deposits in your account include it, so deposits will run around a tenth higher than sales. Timing matters as well: invoices raised in June but paid in July sit in different periods. Loan principal repayments never appear on the P&L at all, only the interest. Explain these differences up front and the assessment moves faster.
A worked example with add-backs
An Adelaide cabinet-making business provides its latest full-year P&L:
| Line | Amount |
|---|---|
| Revenue (ex GST) | $1.2m |
| Cost of sales | $540k |
| Gross profit | $660k |
| Wages | $380k |
| Rent | $60k |
| Other operating costs | $90k |
| Depreciation | $40k |
| Interest on an equipment loan being paid out | $25k |
| Net profit | $65k |
On its face, $65k looks thin for a new $300k loan. Add back the $40k of depreciation (no cash left the business) and the $25k of interest on the loan being refinanced, and the profit available to service new debt is closer to $130k. That’s a very different conversation. Test your own figures in our debt service coverage ratio calculator, and if the numbers are close, let us take a look.
When the P&L is stale or doesn’t exist
A return lodged with the ATO ten months back tells a lender little about this year. A year-to-date P&L exported from Xero, MYOB or QuickBooks fills the gap. Where financials aren’t available at all, low-doc business loans and bank-statement lending can work instead; see our page on business loans without financials.
Related terms
Add-backs, EBITDA, turnover, year to date and operating expenses.
Profit on paper but tight in the bank?
Owners hit that mismatch all the time, and it’s a frequent trigger for seeking finance, and the P&L is usually the document that proves the business deserves it. Start with our short enquiry form: a minute or so, and your credit rating isn’t affected by asking. We work on your file ourselves instead of broadcasting it to lenders across the country. Your numbers are read by an actual team member, who then rings you. Enter turnover and profit as they really are, so our first suggestion is the right one.
Frequently asked questions
Is a profit and loss statement the same as an income statement?
Yes. Profit and loss statement, P&L, income statement and statement of financial performance all describe the same report: income less expenses for a period.
Can I give a lender a P&L from Xero or MYOB?
Usually yes, especially for a year-to-date picture. Many lenders accept a management P&L exported from your accounting software alongside your last accountant-prepared financials. Larger loans may need statements prepared or signed off by an accountant.
Why is my profit different from the money in my account?
Profit counts sales when invoiced and costs when incurred, not when cash moves. It also includes non-cash costs like depreciation and leaves out loan principal repayments, stock purchases sitting on shelves and GST. So a profitable business can be short of cash, and the reverse.
What are add-backs on a P&L?
Expenses a lender adds back to profit when assessing repayment capacity because they won't continue or aren't cash: depreciation, interest on debts being refinanced, one-off costs and some owner expenses. Lenders vary in what they accept, so keep evidence for each.
What if my P&L shows a loss?
It doesn't automatically mean a decline. Lenders look at why: a big one-off cost, heavy depreciation from new equipment or a timing issue can explain it. Property-secured lenders rely less on profit and more on the security and the exit plan.