How to Use Your P&L to Create a Budget

A step-by-step guide to turning your past numbers into a smart plan for the future

If you’re running a small business and feeling like your money is all over the place, there’s one report that can bring it all into focus:

Your Profit & Loss Statement.
Also called a P&L or income statement, this report is more than just a snapshot of your past, it’s a powerful tool for building your future.

In this post, we’ll walk through exactly how to use your P&L to create a simple, effective budget for your business.

Step 1: Understand What’s in Your P&L

Your Profit & Loss shows your business’s:

• Revenue (aka sales or income)

• Cost of Goods Sold (COGS) (if applicable)

• Gross Profit (Revenue – COGS)

• Operating Expenses (like rent, software, marketing, etc.)

• Net Profit (your bottom line after expenses)

This report tells you how much your business is actually earning vs. spending and that’s the perfect starting point for a realistic budget.

Tip: Run your P&L in QuickBooks for the last 12 months to get a full picture of your business performance.

Step 2: Review Monthly Averages

Budgets work best on a monthly basis. So take your last 12 months of data and break it down:

• What was your average monthly revenue?

• How much did you spend on marketing, subscriptions, payroll, etc. each month?

• Were there any seasonal spikes or slow periods?

Look for patterns. Did you overspend in certain months? Did your income fluctuate more than expected?

Step 3: Set Goals Based on Reality

Now that you’ve looked back, it’s time to look forward.

For each line item:

• Revenue: Set a goal. Is your income growing? Do you want to increase it?

• Expenses: Are there categories you can cut? Do you need to invest more in others?

Example: If you spent $400/month on software last year, but half of it was unused, you might budget $200 going forward.

Your P&L helps you make informed, intentional choices not guesses.

Step 4: Build Your Budget

Using your monthly averages and goals, create a simple budget with these categories:

Category - Monthly Budget

Revenue - $X,XXX

Cost of Goods Sold - $XXX

Gross Profit - Auto-calc

Owner’s Pay - $XXX

Marketing - $XXX

Software & Tools - $XXX

Subcontractors - $XXX

Misc. Expenses - $XXX

Profit Target - $XXX

You can do this in:

• QuickBooks (Projects or Budgets section)

• Google Sheets or Excel

• A budgeting app built for business

Step 5: Review and Adjust Monthly

Your budget isn’t a one-and-done document, it’s a living plan.

Each month:

• Compare your actuals vs. budget (QuickBooks can show this!)

• Ask: Did I overspend? Underspend? Why?

• Make adjustments as needed

This keeps you proactive instead of reactive and helps you stay in control of your finances.

Bonus: Use It to Set Profit Targets

Your P&L can also help you figure out:

• How much you need to earn to pay yourself more

• How much you can afford to reinvest in the business

• How much cash you need to set aside for taxes

Knowing your numbers = peace of mind + better decisions.

Need Help?

If you don’t know where to start with your P&L or you need help building a budget that actually works, I’ve got your back.

I offer a free Bookkeeping Health Check to:

• Review your P&L in QuickBooks

• Help you build a monthly budget

• Set up simple systems to track your progress

Contact us by click here

or send us an email at David@RuckandReconcile.com

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And as always, thanks for reading and we’ll see you next week!