Reading the Income Statement (P&L)

Welcome

Hello, and welcome. This is Super Structures General Contractors — a national general contractor headquartered in Powhatan, Virginia — here to help you and your clients build something that lasts. We're glad you're with us, and we look forward to connecting with you.

Today we're tackling Reading the Income Statement (P&L), and it's worth your full attention. Here's the part that actually matters on the job: The P&L shows performance over time: revenue − direct costs = gross profit, minus overhead = net profit; watch gross vs net margin, classify costs correctly, know your breakeven (overhead ÷ gross-margin %), and never let revenue growth hide shrinking margins. Master this and you become the person others come to with the hard questions.

The income statement (profit & loss) shows performance over a period of time:

Revenue − Direct (job) costs = Gross profit Gross profit − Overhead (G&A) = Net profit (before tax)

The lines that matter

• Revenue — recognized as earned (ideally percentage-of-completion).
• Direct / job costs — the labor, material, equipment, subs, other (LMESO) that go into the work.
• Gross profit & gross margin — what's left to run the company.
• Overhead / G&A — office, admin, insurance, your salary.
• Net profit & net margin — the bottom line.

Going Deeper (Intermediate)

Don't confuse gross margin (after direct costs) with net margin (after overhead too) — contractors often run roughly 15–25% gross and ~5–10% net. Watch the trap of growing revenue while margins shrink. Read the P&L by job (job profitability) and company-wide, compare actual to budget and to prior periods, and make sure the over/underbilling adjustment is applied so accrual revenue is accurate.

Advanced / Pro-Level

Use the P&L as a management tool: compute breakeven = overhead ÷ gross-margin % (e.g., $400k overhead ÷ 22% ≈ $1.8M revenue just to break even). Track contribution margin, watch for margin fade, and classify costs correctly — misclassifying overhead as a job cost (or vice versa) distorts both job profitability and your bidding markup. Review the P&L monthly, because it feeds your WIP and tax return and tells you whether a problem lives in job costs/margin or in overhead.

Practice Challenge

A contractor's revenue grew 30% but net profit fell. Name two causes the P&L would reveal. (Answer: (1) shrinking gross margin — direct/job costs rose faster than revenue (underpricing or cost overruns); and/or (2) overhead growing faster than revenue (G&A creep). The P&L shows whether the bleed is in job costs/margin or in overhead — growth without margin discipline destroys profit.)

Takeaway: The P&L shows performance over time: revenue − direct costs = gross profit, minus overhead = net profit; watch gross vs net margin, classify costs correctly, know your breakeven (overhead ÷ gross-margin %), and never let revenue growth hide shrinking margins.

Educational overview — not accounting, tax, or legal advice. Work with a qualified construction CPA for your business.