Was this email forwarded to you? Sign up here!
What the Income Statement Really Shows
Your income statement (P&L) tells the story of performance, not cash.
It records what you earned and what it cost you to earn it, over time.
Revenue is logged when it’s earned, even if the cash hasn’t hit.
Expenses show up when they’re incurred, even if unpaid.
That’s called accrual accounting.
Most small businesses use cash accounting.
We’ll break down the difference (and why it matters) in a later issue.
P&L isn’t a selfie of your bank balance.
It’s a movie of your business’s behavior.
CFOs don’t stare at numbers; they read signals.
Let’s read the four that matter most.
The Four Core Signals
Revenue: The Pulse
Signal: Growth Quality
Revenue tells you how much value your business delivered, not just how much cash came in.
Healthy revenue is consistent, explainable, and aligned with your model.
Spiky revenue isn’t automatically bad, but you should know why it’s spiking.
Discounting? Fine, if it’s designed into your model.
Dangerous, if it’s a reflex to chase volume or fill slow months.
Founder Lens:
Ask, Who and what drives my most predictable revenue?
Healthy growth is measured in repeatability, not adrenaline.
COGS: The Muscle Effort
Signal: Efficiency
Your Cost of Goods Sold (COGS) shows the muscle your company uses to deliver what it promises (materials, fulfillment, contractors, hosting, or manufacturing).
Some industries thrive with high COGS (volume plays). Others rely on lean delivery (high-margin models). There’s no “right” number, only a right balance.
When COGS grows faster than revenue, you’re working harder for the same output. That’s strain, not strength.
Founder Lens:
Efficiency isn’t cutting costs. It’s cutting waste.
Ask, Where are we spending effort that customers don’t see or value?
OPEX: The Brainpower
Signal: Focus
Operating Expenses (OPEX) cover the cost of thinking, selling, and staying organized (salaries, rent, software, marketing, or insurance).
OPEX is where discipline lives (or dies).
High OPEX can be healthy if it fuels growth; harmful if it feeds drift.
CFOs don’t look for the highest number.
They look for the smartest ratio: is OPEX scaling with revenue or outpacing it?
Founder Lens:
Label each expense as an engine, shield, or ornament.
Engines drive revenue.
Shields protect risk.
Ornaments just sparkle.
Trim the ornaments first.
Net Income: The Health Verdict Signal: Endurance
Net income shows what’s left after everything else, your staying power.
It’s not just “how much you made”; it’s how efficiently your system converts work into lasting strength.
One healthy month means progress. Six healthy months mean design.
Founder Lens:
Profit is your company’s recovery rate. How fast it rebuilds energy after effort. Don’t chase perfect months. Chase reliable ones.
From Numbers to Narrative
Your income statement isn’t just math. It’s storytelling in disguise.
Each line reveals a different truth about how your business behaves:
Revenue tells you if people truly want what you’re building, and if they keep saying yes.
COGS shows whether you’re working smarter or just working harder.
OPEX reveals how focused your operation is, whether you’re fueling engines or feeding ego.
Net Income exposes endurance; is your business built to last, or just to survive?
When you start reading your P&L this way, you’re not looking for “good” or “bad”. You’re looking for truth, where your business spends, strains, and strengthens.
And truth is the foundation of every sustainable decision.
Community Note
Founders in our NestLedger community are always inventing better ways to stay close to their numbers. Some use “Finance Fridays,” others track narrative notes beside each monthly P&L: what worked, what wobbled, what to watch.
We’re adding a section to the NestLedger Playbook called Founder Financial Habits, practical, real-world rhythms that make numbers human again.
👉 Reply and share your ritual or reflection.
How do you stay grounded in your financial truth each month?
|
