Finance · Proving to Scaling
Reading your P&L
You read your P&L line by line, know which question to ask at each line, and can see from the margins over three periods where your profit goes.
Does this sound familiar?
- Revenue grew by fifteen per cent last year, and yet there was less left over than the year before.
- The bookkeeper sends a PDF every quarter. I look at revenue and the profit at the bottom, and skip the rest.
- My accountant says my gross margin is 85%. Another founder says 40%. We do the same work.
- The bank asks about EBITDA, and I'm not quite sure what's in it and what isn't.
- This month showed a loss, last month a healthy profit. I don't know whether to worry.
Who it's for, and when
For founders and members of the leadership team who get a report from the bookkeeper every quarter and mostly look at the bottom line. From Proving onwards it matters: that's where you see whether a client brings in profit or just revenue. In Organising and Growing you add people and costs that don't bring in revenue directly, and this is where you'll first see whether the growth pays off. In Searching it's too early: there you look at what's in the bank.
The model
A P&L shows what you earned in a period: the revenue that came in, what it cost, and what was left. You read it from top to bottom, and each line takes something off. The higher up the list the money drains away, the closer it is to your actual work. Net profit is at the bottom, but it tells you the least about where things go wrong.
Read every line as a percentage of revenue too. An amount in euros grows with your revenue; a percentage doesn't. That shows you whether the business is earning better or worse, whatever its size. Then put three periods of the same length side by side: twelve months next to twelve months, or Q3 next to Q3 last year. You only see a direction once you have three.
Watch what's in your direct costs. In your accountant's annual accounts for a service business, cost of sales is often just purchases, and all wages sit further down under staff costs. Then the gross margin is 85%, while after paying the people who do the work 40% is left. In this lesson, and in Boldcaster, direct labour costs belong in direct costs. Ask your bookkeeper to show them separately: the wages of people on client work, apart from the office, sales and senior leadership.
The structure of the P&L follows the Dutch Civil Code (Book 2, Title 9) and the Dutch decree on annual accounts formats. Putting direct labour costs under direct costs is the management accounting layout, as Kees van Alphen and Arco Verolme explain it in Financieel management.
Revenue
What you invoiced in the period, excluding VAT. The question: does the growth come from more clients, more work per client, or a higher price? You can't see that here; ask for it per client or per service.
Direct costs
What the work itself costs: purchases (materials, outsourced work, freelancers, licences you resell) and the direct labour costs of the people who do the work. The question: are these costs growing faster than revenue?
Gross margin
Revenue minus direct costs, in euros and as a percentage. It's what each euro of revenue brings in before you pay for the office, sales and senior leadership. The question: is the margin higher or lower than last year, and is that down to your price, your purchases or the hours you don't bill?
Overheads (other operating costs)
Everything you still pay in a month with no clients: indirect staff, premises, cars, IT, marketing, advice. The question: which of these costs grew over the past year, and did revenue grow with them?
EBITDA
Gross margin minus overheads: earnings before interest, tax, depreciation and amortisation. It tells you what your operations earn, regardless of how you're financed or what you once bought. A buyer or a bank looks here first. The question: what percentage of revenue is it, and is it moving the right way?
Depreciation
Things you bought earlier and spread over several years: laptops over three, a refit over ten. The money has already gone; this line only shows the part that belongs to this period. The question: are there investments coming up that will make this line heavier later?
Net profit
EBITDA minus depreciation, interest and corporation tax. It's what's left for the shareholders. The question: is it enough to pay for your investments, your loan repayments and a buffer? That isn't on the P&L, and it's what the lesson Profit isn't cash yet is about.
Pitfalls
Reading one month as if it were a year
A monthly figure swings with things that have nothing to do with your business: holiday allowance in May (Dutch employers pay it out once a year), an invoice booked in the wrong month, a quarterly rent bill. Look at a rolling twelve months, or at the same quarter last year.
Comparing EBITDA without correcting your own salary
If the owner-director takes a €60,000 salary while a replacement would cost €110,000, your EBITDA is €50,000 too high. To compare with other businesses, and for valuing the business, what counts is normalised EBITDA: adjusted for items like this and for one-off costs. A normalisation isn't money, though: nothing changes in the bank.
Watch and read
A short Dutch explanation of how a profit and loss account is built up, with examples. Useful if the terms don't come naturally yet.
Watch on YouTubeWalks through the P&L from top to bottom, line by line, with a worked example.
Watch on YouTubeThe difference between EBITDA, operating profit and net profit, and what each of the three can and can't tell you.
Watch on YouTubeRead
Financieel management: het verhaal achter de cijfers
Kees van Alphen en Arco Verolme · 2025 · ISBN 9789024472246
Written in Dutch for founders and managers without a finance background. It covers the profit and loss account, how to judge it against your budget, previous years and your sector, and how it ties in with the balance sheet and cash flow. The fifth revised edition also covers start-ups and scale-ups.
View the bookApply it
- 1
1. Put your figures in this order
Take the last twelve months. Revenue, purchases, direct labour costs, gross margin, overheads, EBITDA, depreciation, interest, corporation tax, net profit. If direct labour costs aren't shown separately, ask your bookkeeper to split wages into direct (client work) and indirect.
- 2
2. Work out every line as a percentage of revenue
Divide each line by revenue and put the percentage next to it. Compare mainly with your own previous years: an average from another sector says little about your business.
- 3
3. Put three periods side by side
Same length, same layout: three financial years, or the same quarter in three years. Look first at gross margin and EBITDA as percentages. If either moves by more than two percentage points, find the line that explains it.
- 4
4. Write down one question for each line
Use the questions for each line above. Take them to your next meeting with your bookkeeper or your leadership team. The answer is rarely on the P&L itself; it's in your timesheets, your client list or your purchases.
Examples
An agency of 25 people, financial year 2026
Revenue: €3,000,000 (100%) Purchases (freelancers, outsourced work): €450,000 (15.0%) Direct labour costs (18 people on client work): €1,440,000 (48.0%) Gross margin: €1,110,000 (37.0%) Overheads: Indirect staff (7 people): €560,000 Premises: €120,000 Cars and travel: €90,000 IT and software: €60,000 Marketing: €50,000 Other costs: €40,000 Total overheads: €920,000 (30.7%) EBITDA: €190,000 (6.3%) Depreciation: €40,000 Operating profit (EBIT): €150,000 (5.0%) Interest: €10,000 Profit before tax: €140,000 Dutch corporation tax (19%): €26,600 Net profit: €113,400 (3.8%)
The same agency, two years side by side
2025: revenue €2,600,000, gross margin 40.5%, EBITDA €234,000 (9.0%). 2026: revenue €3,000,000, gross margin 37.0%, EBITDA €190,000 (6.3%). Revenue grew by €400,000, and EBITDA fell by €44,000. If you only look at the bottom line, you'd think office costs are too high. The percentages say something else: overheads went from 31.5% to 30.7% of revenue, so they grew more slowly than revenue. The difference is in the gross margin. The agency took on the growth with freelancers, and they cost more per hour than its own people. 3.5 percentage points of gross margin on €3 million of revenue is €105,000 a year. So the question for the leadership team is about the bought-in work: can its price go up, or should we hire someone ourselves sooner?
Do this in your own business
Everything up to here is free. What you fill in for your own business, you keep in Boldcaster.
- Go to Company valuation. Here you enter, for each period, your revenue, purchasing, direct labour costs and EBITDA over the last twelve months, or let your bookkeeper do it through the Bookkeeper link. The app works out your EBITDA margin. Value development then puts your valuations side by side, so you can see the trend over time.
- You assign the lesson to your team and see who has done it.
- The quiz counts towards your progress, and you see which lesson comes next.
Four weeks free. You'll land straight in this lesson.
Quiz
6 situations. You need 5 of 6 right. You can try again at any time.
1.Your revenue grew by 15%, and your EBITDA in euros fell. Where do you look first?
2.Your accountant's annual accounts show a gross margin of 85%. A similar agency says 40%. What's the most likely explanation?
3.Your overheads rose from 28% to 33% of revenue. What question do you ask?
4.In January you buy €60,000 of laptops, to be depreciated over three years. What do you see on this year's P&L?
5.In Q2 your revenue rose, and so did your EBITDA in euros. Your EBITDA margin fell from 10% to 8%. What does that mean?
6.As owner-director you take a €60,000 salary. An external director would cost €110,000. Your EBITDA is €190,000. Which EBITDA do you use to compare your business with others?
Nothing is saved here. In the app, the quiz counts towards your progress.
Read next
- Profit isn't cash yet · You see where your profit goes between the P&L and the bank, you work out what a payment term costs you, and you know in advance how much cash growth will take.
- What your people bring in · You work out how much gross profit every euro of wages brings in, compare it with the benchmark for your sector, and know how much payroll your current gross profit can carry.
- Budget, forecast and actuals · You know what your budget, forecast and actuals each do, you build your revenue from capacity, utilisation and rate, and you can explain a variance line by line.
Not sure where to start? Take the growth scan