Would you like a simply way to calculate your Profit/Loss?
Net Profit Calculator Download
Calculating your own net income is a trick every entrepreneur should have in their back pocket. It can help you know how to budget for upcoming months, which months do better than others (if your business has busy seasons), and how much to pay in your quarterly Estimated Taxes.
The formula for calculating your net income is as follows:
- Revenue-Cost of Goods Sold=Gross Income
- Gross Income-Expenses= Net Income
This seems simple enough, but the more complex your business is, the more complex this formula becomes. Some businesses have several streams of income (revenue), and almost all businesses will have more than one expense.
To begin, let’s define each word:
- Revenue– Income (What the client actually pays you.)
- Cost of Goods Sold– The cost to you in order to serve that client. (If you’re a hairstylist, then the cost of hair dye, shampoo, and nail polish falls into this category.)
- Gross Income– Pay before expenses are taken out.
- Expenses– Money spent. (Advertising, Rent, Websites, and Insurance fall into this category.)
- Net Income– Your business’s actual profit.
In order to make this come to life, let’s create a scenario as if you are a hairstylist and your numbers for the month are as follows:
- Revenue: 4500
- Cost of Goods Sold: 950 (hair dye, shampoo, scissors, nail polish)
- Expenses: 1250 (Flyers, Website, Rent, Business License)
So….
- 4500-950= 3550 Gross Income
- 3550-1250= 2300 Net Income
The great thing about having a bookkeeping software, like Quickbooks Online, is that it can generate a report for you every month to show you what your Net Income is if you classify all of your transactions into the appropriate categories throughout that month. To get you started, here is a FREE download of a Net Profit Calculator that I created.
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Blessings,
Valerie Johnston
Profit Meadow Bookkeeping LLC