THE SUBCONTRACTOR P&L EXPLAINED.
A profit and loss statement shows whether the work made money over a period of time. For a subcontractor the lines that matter are revenue, direct job cost, gross profit, overhead, and net profit. The trap is reading the P&L without job costing behind it, because a healthy company-wide number can hide jobs that are losing money.
The profit and loss statement, the P&L or income statement, is the report most subcontractor owners look at, and the one most often misread. It answers one question well: did the business make money over this month, quarter, or year. It cannot tell you which jobs made the money or which ones lost it, and that gap is where subcontractors get fooled. A P&L showing 8% net can hide a winning job carrying two losing ones. Read alongside job costing and a WIP schedule, the P&L is powerful. Read alone, it is a comforting average. This page walks the lines that matter and how to read them honestly.
WHAT A P&L IS, AND IS NOT.
A profit and loss statement is a summary of revenue, costs, and expenses over a period of time, ending in net profit. It answers whether the business made money during that span. It covers a period; the balance sheet, by contrast, is a snapshot at a single point in time.
What the P&L does not do is tell you where the profit came from. It rolls every job into one set of totals, so a strong number can mask individual jobs that are bleeding. That is why the P&L is the start of the analysis, not the end.
READING IT TOP TO BOTTOM.
The work you billed, not the cash you collected.
Revenue is the value of work performed and billed in the period. It is recognized when earned, not when paid, which is exactly why a profitable P&L can sit next to an empty bank account. Revenue is the multiplier: at a 10% net it turns $1M into $100K of profit, and at a loss it just accelerates the damage.
What the work cost, and what is left to run the business.
Direct job cost is material, labor, equipment, and direct job expense, the cost to build the work. Revenue minus direct cost is gross profit, and gross margin is that as a percentage. Gross margin is what has to cover all overhead before anything becomes net profit. For most subs a healthy gross margin runs in the low to mid twenties.
The cost of being open, and the number that matters.
Overhead is everything it takes to keep the business open when you are not building: office, software, insurance, the estimating team, the owner. Gross profit minus overhead is net profit, the only number that says the business works. A subcontractor can hold a fine gross margin and still net near zero if overhead is unmanaged.
WHY THE P&L LIES BY OMISSION.
The P&L averages. A company-wide 8% net can be one job at 20% carrying two at a loss, and the P&L will never show it. Without job costing underneath, you cannot tell a winning job from a losing one, so you keep bidding the losers thinking the business is healthy.
Read the P&L with job costing and a WIP schedule, and the average breaks into the truth: which jobs made money, which lost it, and why. That is the difference between knowing the business made money and knowing how.
THE P&L IS HALF THE PICTURE.
The profit and loss statement tells you whether the work made money. Job costing tells you which work. The balance sheet tells you whether the business is sound. You need all three, and the P&L is the one that is most dangerous to read alone.
The Construction CFO builds the job costing and reporting that make the P&L honest, as part of CFOS for subcontractors doing $1M to $12M.
FREQUENTLY ASKED.
