How to Use an Income Statement Template for Your Small Business
How to Use an Income Statement Template for Your Small Business
Published
September 18, 2025
Finance
Running a small business means wearing many hats, owner, marketer, customer service, and often, accountant too. But one of the biggest challenges business owners face is understanding their financial health. You may know how much money you made last month, but do you know whether you’re truly profitable?
That’s where an income statement template comes in.
Also called a profit and loss (P&L) statement, the income statement breaks down your revenue, expenses, and net income over a period of time. It’s one of the most important financial documents for any business and with the right template, it becomes much easier to create, update, and understand.
In this guide, you’ll learn:
What an income statement is and why it matters
The standard income statement format every small business should know
How to use a simple income statement template (including in Excel)
Step-by-step instructions for customizing it to your business
Practical examples and tips to make it work for you
By the end, you’ll not only understand the numbers you’ll know how to use them to make smarter business decisions.
What Is an Income Statement?
An income statement is a financial report that shows your business’s revenue, expenses, and profit (or loss) over a specific time period.
Think of it as a snapshot of how well your business is performing.
Key components of an income statement:
Revenue (Sales) – All the money earned from products or services.
Cost of Goods Sold (COGS) – Direct costs of producing goods or services.
Operating Expenses – Rent, salaries, utilities, marketing, etc.
Operating Income – Gross profit minus operating expenses.
Other Income/Expenses – Interest, taxes, one-off gains or losses.
Net Income – The final number: profit or loss.
If the balance sheet is your financial “snapshot,” the income statement is your business’s scorecard. It shows whether you’re winning (profitable) or losing (running at a loss).
Why Small Businesses Need an Income Statement
Many small business owners focus only on cash in the bank but that doesn’t tell the full story. An income statement template gives you a clearer picture.
Benefits of using an income statement:
Track profitability: See if you’re making money or losing it.
Identify trends: Spot rising expenses or seasonal revenue changes.
Support decision-making: Decide whether to cut costs, raise prices, or invest in growth.
Secure funding: Banks and investors often require financial statements before lending money.
Stay compliant: In some cases, income statements are necessary for tax reporting.
In short: it’s not just an accounting document, it’s a decision-making tool.
Income Statement Format
The income statement format follows a simple structure. Most templates (including Excel versions) use the same flow:
Net income = Operating income + Other income/expenses – Taxes
This structure stays the same whether you’re using a simple income statement template or a more detailed one.
Simple Income Statement Template
If you’re just starting out, you don’t need complicated accounting software. A simple income statement template, especially one in Excel or Google Sheets, can get you 90% of the way.
Here’s a basic layout you can copy into Excel:
That’s it, you’ve got a profit and loss statement template free of charge.
Income Statement Template Excel: Why It Works
An income statement template Excel file has some advantages:
Easy to use: Input numbers into cells and let formulas do the math.
Customizable: Add categories that fit your business.
Automated: Link it to other sheets (like sales or expenses) for updates.
Visuals: Use charts to show trends over time.
If you’ve ever wondered how to make an income statement in Excel, the answer is: start with a template, then adjust it for your needs.
Step-by-Step: How to Use an Income Statement Template
Here’s how to put your template to work.
Step 1: Choose the Right Template
A simple income statement template if you’re a freelancer or solopreneur.
A detailed template if you manage multiple revenue streams and expenses.
An Excel income statement template if you want calculations automated.
Step 2: Set the Time Period
Decide if you’re making a monthly, quarterly, or yearly statement. Many small businesses do all three.
Step 3: Enter Revenue
List all sources of income:
Product sales
Service fees
Subscriptions
Other income (like rental income or interest)
Step 4: Enter Expenses
Separate them into categories:
COGS (materials, shipping, labor tied to production)
Net Income Calculation: 85,000 – (2,400 + 1,500 + 600 + 20,000 + 1,500) = $59,000
By using a template, Jasmine quickly sees her expenses aren’t too high, but she might benefit from investing more in marketing to grow revenue.
Tips for Making the Most of an Income Statement Template
Keep it updated: Enter numbers monthly for the clearest picture.
Customize categories: A restaurant’s expenses differ from a freelancer’s.
Use comparisons: Track month-over-month or year-over-year.
Visualize data: Charts make trends easier to understand.
Automate if possible: Link your template to accounting software for real-time updates.
Common Mistakes to Avoid
Mixing personal and business expenses: This makes your numbers meaningless.
Forgetting irregular income/expenses: Include one-off costs (like new equipment) and unusual income.
Only looking at yearly numbers: Monthly or quarterly statements help spot issues earlier.
Relying only on templates: Eventually, as your business grows, you’ll want professional accounting software.
Other Tools Beyond Templates
While a free profit and loss statement template is a great start, consider upgrading when your business scales.
Accounting software (like QuickBooks, Xero, or Wave) automates income statements.
Custom dashboards can show cash flow, balance sheets, and forecasts alongside P&L.
Professional accountants can add insight templates alone can’t provide.
Key Takeaways
An income statement template is a simple but powerful tool for tracking profitability.
The income statement format includes revenue, expenses, and net income.
A simple income statement template in Excel is enough for most small businesses starting out.
Use your statement regularly to make smarter decisions, not just for tax time.
Conclusion
Managing your small business without an income statement is like driving without a dashboard. You're moving, but you don’t know how fast, how far, or whether you’re running out of gas. By using an income statement template, you not only track your numbers but also understand them. And that understanding helps you make smarter, more confident business decisions.
