Tunde runs a screen-printing business in Kano. Every month he is busy: new orders, new clients, fabric coming in, money going out. At the end of the month he feels like the business is doing well.
Then he looks at his bank account and wonders where the money went.
His accountant sends him a document called a Profit and Loss statement (sometimes called a P&L or Income Statement). Tunde sees rows of numbers, nods politely, and files it away without reading it.
That habit costs him more than he realises.
Your P&L is the single document that tells you whether your business is actually making money or just staying busy. Once you know how to read it, it takes five minutes a month. This guide walks through every line using Tunde's screen-printing business as the example.
A P&L is a summary of money coming in and money going out over a set period — usually one month or one year.
It answers one question: after paying all your bills, how much money did you keep?
The most important thing to know about a P&L: it shows money your business earned, not money that landed in your bank account. If you issued an invoice in July but the client paid in August, your P&L counts it in July. This is why a profitable P&L does not always mean cash in hand — and why you can be profitable but still struggle to pay staff on Friday.
Most P&Ls you will see — whether from an accountant, a bank, or a tool like Lucrive — follow the same structure. Here is what each section means.
This is the total value of sales and services your business delivered during the period. For Tunde, this is every screen-printing job he completed in July — whether paid or not.
Tunde's July Revenue: ₦1,850,000
This does not mean Tunde received ₦1,850,000 in July. It means he completed jobs worth that amount.
COGS (Cost of Goods Sold) means the money you spent directly to produce what you sold. For Tunde: fabric, ink, transfer paper, and any daily workers he hires per job.
If Tunde had not taken those orders, he would not have spent this money. That is what makes it "direct."
Tunde's July COGS: ₦740,000
Gross Profit = Revenue minus COGS. This is what Tunde earns before paying his regular monthly bills.
Tunde's July Gross Profit: ₦1,850,000 − ₦740,000 = ₦1,110,000
A gross profit margin of 40%–60% is typical for screen-printing. Tunde's is 60%. If that number shrinks month to month, his raw material costs are rising faster than his prices.
OPEX (Operating Expenses) are costs your business pays regardless of how many jobs you complete. Rent, staff salaries, electricity, internet, equipment maintenance, marketing.
Tunde's July OPEX:
Net Profit = Gross Profit minus OPEX (and any loan interest or tax provisions).
Tunde's July Net Profit: ₦1,110,000 − ₦430,000 = ₦680,000
Tunde's business earned ₦680,000 in July after covering every cost.
Having the numbers is only half the work.
Compare this month's revenue to last month and to the same month last year. A screen-printing business in Kano sells more in December (end-of-year uniforms) and less in February. Seasonal dips are normal. A dip with no seasonal explanation needs investigation.
Gross profit margin = (Gross Profit ÷ Revenue) × 100.
Tunde's margin in July: (₦1,110,000 ÷ ₦1,850,000) × 100 = 60%
If this falls below 50% in August, Tunde knows his ink supplier has raised prices, or he is quoting jobs too cheaply. He can act before the problem compounds.
Tunde's OPEX in July was ₦430,000 against revenue of ₦1,850,000, which is 23%. For a production business that is manageable.
If revenue drops to ₦900,000 in August but OPEX stays at ₦430,000, that ratio jumps to 48%. Knowing this in month two gives Tunde time to cut costs or push for more orders before the shortfall becomes a crisis.
Many MSME owners forget to include their own salary in operating expenses. If Tunde needs ₦250,000 a month to live, his net profit must consistently clear that amount for the business to be sustainable.
If you are not paying yourself from net profit, you are running the business at a loss and funding it from savings without realising it. It is one of the quietest ways a business fails.
Mistake 1: Confusing revenue with cash received
Revenue is what you earned. Cash received is what you collected. If ₦600,000 of Tunde's July revenue is still unpaid (clients who owe him), his bank account is ₦600,000 lighter than his P&L suggests. Track your debtors separately.
Mistake 2: Missing costs that should be in COGS
Some business owners only put raw materials in COGS and forget direct labour — the daily workers hired per job. Understating COGS inflates gross profit and makes the business look more efficient than it is. Every cost that only exists because of a specific job belongs in COGS.
Mistake 3: Not separating owner withdrawals from operating expenses
When Tunde transfers money to his personal account, that is not an operating expense — it is an owner's drawing. Mixing it into expenses distorts the P&L. Pay yourself a fixed "salary" line in OPEX and keep all other personal withdrawals out of the business accounts.
Lucrive's Budget Module lets you build a monthly P&L as you go — without waiting for your accountant to send a report at the end of the month.
You enter your budgeted figures at the start of each month across five categories: Revenue, Cost of Goods Sold, Operating Expenses, Finance Costs, and Tax. As the month progresses, Lucrive pulls your actual revenue directly from your paid invoices — you do not enter it manually. For your costs, you record actual expenses against each line as they happen.
By mid-month, you can already see whether you are tracking ahead or behind your targets, and by how much.
You can find the Budget Module under your dashboard once you are logged into Lucrive.
The first Monday after month-end works well. Sit down with your P&L and work through the four questions. Write the answers in one line in your notes app:
"July: Revenue ₦1.85M (+8% vs June). Gross margin 60% (steady). OPEX 23% of revenue (good). Net profit ₦680k. Outstanding: collect ₦600k from Alhaji Musa and Bright Fabrics."
Five minutes. Then close the laptop.
Most MSME owners who run into financial trouble are not doing so because business is bad. They are doing so because they did not see the warning signs until the problem was already large. A monthly P&L review does not require an accountant or a spreadsheet. It just requires the discipline to look at the numbers before they look at you.
Start building your monthly P&L on Lucrive.
People and businesses in our examples are illustrative, not real Lucrive customers. Figures are worked examples: confirm your own position with a qualified tax adviser.