From the desk of our Founder & CEO, Hafiz M. Riaz, FCCA (UK)
Every November, owners ask me the same question: “What should I do before December 31?” My answer is always the same. Before you make a single year-end decision, sit down with your profit and loss statement and read it properly. Not a glance at the bottom line, but a calm, line-by-line read. Your P&L is the most honest letter your business writes to you each year. The owners who plan well are the ones who have learned to read it.
Here is how I read a P&L with an owner in the weeks before year-end, in the order I recommend.
1. Read the trend before the total
A full-year revenue figure tells you how big the year was. It does not tell you how the year moved. Ask for your P&L by month, side by side, and look at the shape. Was revenue steady, seasonal, climbing or slipping in the second half? A strong annual total can hide a soft fourth quarter, and a soft quarter going into January deserves attention before you commit to new spending. The trend is where planning starts.
2. Let gross margin tell you whether your pricing works
Gross margin is revenue minus the direct cost of delivering what you sell, shown as a percentage of revenue. It is the clearest signal of whether your pricing and delivery model are healthy. If revenue grew but gross margin narrowed, you may be working harder for less. I like to compare gross margin month by month and against the prior year. When it moves, there is always a reason: a supplier price change, a discount that became permanent, or labor that crept into delivery. Find the reason before you plan around the number.
3. Measure overhead as a share of revenue
Overhead in dollars almost always rises as a business grows. That is not the question. The question is whether overhead is rising faster than revenue. Divide your operating expenses by revenue and watch the percentage over time. Software subscriptions, rent, insurance and administrative payroll tend to grow quietly. A one or two point drift in this ratio, year after year, is one of the most common reasons a growing business does not feel more profitable.
4. Separate one-time items from your run rate
Most years include something unusual: a large equipment repair, a legal matter, a one-off contract, an insurance recovery. Left mixed in with ordinary activity, these items distort the picture in both directions. I ask owners to mark them clearly so we can see two views: the year as it happened, and the year as it would look on a normal run rate. The second view is the one you should use for next year’s budget, pricing and hiring decisions.
5. Make sure every expense line is clean and business-only
A P&L you can plan from is one you can trust. That means expenses are coded to the right accounts, personal spending is kept out, and nothing is sitting in “uncategorized.” The IRS describes a deductible business expense as one that is both ordinary and necessary: an ordinary expense is common and accepted in your field, and a necessary expense is helpful and appropriate for your business (IRS Publication 583). Clean categories make that review far easier, and they make your year-end conversation with your tax preparer faster and more precise.
6. Bring the P&L to your year-end planning conversation
Once the statement is clean and you understand it, it becomes the basis for real planning: owner compensation, timing of purchases, cash reserves and next year’s targets. If you make estimated tax payments as an individual, keep the calendar in view as well. For the 2026 tax year, the fourth estimated payment on Form 1040-ES is due January 15, 2027, and the IRS notes you do not need to make that payment if you file your 2026 return by February 1, 2027, and pay the entire balance due with your return (IRS, 2026 Form 1040-ES). Your specific situation decides what is right for you, which is exactly why a current, accurate P&L matters going into that discussion.
A note on standards
At PRC, we hold ourselves to a simple standard: an owner should be able to read their own financial statements and understand what they are saying. Reports that only an accountant can interpret are not finished. Every monthly close we deliver is built so the story is visible on the page: trends, margins, overhead and the items that need a decision.
How PRC can help
PRC Accounting & Taxation is an accounting and tax firm providing U.S. bookkeeping, tax preparation, payroll and white-label support for CPA firms. If you would like a clear, month-by-month P&L before year-end, or a second set of eyes on the one you have, we would be glad to walk through it with you.
Book a free 30-minute consultation: prcaccounting.com/contact · Call (984) 379-7823 · Email office@prcaccounting.com
This article is general information, not tax or legal advice for your specific situation.
Sources
- IRS Publication 583, Starting a Business and Keeping Records (Deducting Business Expenses)
- IRS, 2026 Form 1040-ES, Estimated Tax for Individuals
This article is general information, not tax or legal advice for your specific situation. Confirm dates and rules against the current IRS source before you rely on them.