Every business owner should have a solid understanding of net income, otherwise known as net profit and net earnings.
Why do you think that is? Most business failure stems from inappropriate financial knowledge and a lack of practical strategies. Every business owner should have a solid understanding of net income, otherwise known as net profit and net earnings. These terms describe the total money earned, helping better explain what a company has left over after paying off all its expenses. To keep it simple, when looking at the last line of your Profit and Loss statement (P&L), you will find where a business's net income lives. The formula for finding net income is simple; Total Revenues – Total Expenses - Cost Of Goods Sold = Net Income.
The net income is located on a company's income statement, also called a Profit and Loss statement (P&L). Thus the number is calculated through a simple equation of Total Revenues subtract Total Expenses subtract Cost Of Goods Sold to equal Net Income. (Total Revenues – Total Expenses - Cost Of Goods Sold = Net Income). Net income helps measure the cash flow to make clear the health of a business's financial operations while being a vital tool in setting realistic goals for growth and expansion in your business. In addition, it can be instrumental in gauging the long-term stability and health of a company.
Understanding and accurately calculating net income will provide a real sense of a business's health and current financial situation. Some critical questions you should be asking yourself when looking to have a positive net income are;
Many intricacies can make accurately calculating net income tricky. Having a trained specialist like a Fractional CFO can ensure proper reporting and provide a wide range of knowledge to ensure credibility but highlight missed factors of the equation. They provided a helpful understanding of overcoming financial challenges and helping achieve the goals your business may have. In addition, through keen listening, Fractional CFOs can prioritize business pain points free from judgment and bias. Net income is the bottom line of every business, providing a real sense of a business's health and current financial situation. Would your business benefit from a Fractional CFO? Check out this article to learn more.