Is Your Business Really Making a Profit? Here's How to Find Out

Running a small business is no small feat. Between serving clients, managing your team, and juggling daily tasks, it's easy to overlook the numbers that truly matter. But when it comes to business success, understanding your profitability is crucial.

Profit isn't just about revenue—it's about what's left once all the bills are paid. And if you're not regularly reviewing your financial health, you could be missing out on growth opportunities or walking into preventable risks. So, how do you know if your business is actually turning a profit? Let's break it down.

1. Understand Your Net Profit Margin

Your net profit is the amount of money your business keeps after all expenses, taxes, and interest have been deducted from your revenue. Here's the basic formula:

Revenue – Expenses = Net Profit

If the result is positive, you're in the black. If it's negative, you're losing money.

Pro Tip: Don't confuse turnover with profit. A company earning £150,000 in revenue could still be making a loss if expenses exceed income.

Net profit margin shows how efficiently your business is operating. It's wise to analyse this monthly—not just annually—so you can spot patterns, understand seasonal shifts, and make timely adjustments.

2. Track Your Gross Profit Margin

Your gross profit margin focuses on product profitability—especially useful if you sell physical goods. Use this formula:

Sales Revenue – Cost of Goods Sold = Gross Profit

Gross profit doesn't include operational costs like rent, salaries, or marketing. It simply tells you how much you're making from each sale before those other costs come into play.

If your gross profit is healthy but your net profit is shrinking, the issue likely lies in high overheads. This is where reviewing operational spending becomes essential.

3. Review Operating Expenses

Growing businesses often encounter rising costs—but not all spending contributes to growth. Monitor your operating expenses carefully, including rent, wages, marketing, and utilities.
Ask yourself:

• Are there any non-essential subscriptions you can cancel?
• Can supplier costs be negotiated?
• Are staffing levels aligned with workload?

Even necessary investments, like hiring or equipment upgrades, need to be balanced with your profit goals. Having Accountants Bolton review your expense trends can reveal quick wins and long-term savings.

4. Calculate Profit Per Client

Not all clients are equally profitable. While some bring in significant revenue, they may also drain resources or require additional support.

Here's how to assess client profitability:

• Subtract project expenses from total project income.
• Divide that number by the hours spent on the project.

This reveals your true hourly rate per client. Focus on nurturing clients who generate higher margins and reevaluate those who cost more than they're worth.

5. Make Profitability a Monthly Priority

Waiting until the end of the year to review profitability is risky. Monthly reviews help you stay agile and respond quickly to dips or overspending.
Review:

• Profit & loss reports
• Cash flow statements
• Expense breakdowns
• Sales and client trends

If the numbers don't add up or you're unsure where to start, Accountants Bolton can support you with tailored financial reviews and strategic insights to keep your business financially healthy.

Final Thoughts

Profitability isn't just a metric—it's your business's lifeline. By tracking the right figures consistently and understanding what they mean, you can make smarter decisions, avoid cash crunches, and build a more sustainable future.

You don't need to figure it out alone. With the right support and systems in place, staying on top of your financial performance becomes a manageable—and even empowering—part of your business journey.