You’re Making Money, But Are You Actually Profitable?
Running a small business often means juggling a dozen things at once. It’s easy to assume that if sales are steady and the bank account looks okay, everything must be going fine. But here’s the reality: revenue is not the same thing as profit.
I hear this from established business owners all the time:
"We’re bringing in money, but I’m not sure where it’s all going."
If you’ve ever had that feeling, you’re not alone. Just because money is flowing in doesn’t mean you’re keeping enough of it. Profitability is not about how much you make. It’s about how much you keep. Let’s look at how to know if your business is truly profitable and what you can do if it’s not.
Profit vs. Revenue vs. Cash Flow
Let’s start with some basic definitions in plain language:
Revenue is the total amount of money coming in from sales.
Expenses are the costs of running your business.
Profit is what’s left over after you subtract expenses from revenue.
Cash flow is the actual movement of money into and out of your accounts.
Here’s a simple way to think about it. Revenue is how much water you pour into a bucket. Expenses are the holes in the bottom. Profit is whatever stays in the bucket. And cash flow is the water moving around as you try to keep it all from spilling.
You can have strong revenue numbers and still have little or no profit. The only way to be sure is to look at your books.
The Hidden Costs That Reduce Profit
Some costs are easy to spot. Rent, payroll, materials, equipment. Others are more subtle and often go unnoticed.
Here are a few examples of hidden expenses I see regularly in client books:
Monthly software subscriptions you forgot about
Credit card and payment processing fees
Services or products you’re undercharging for
Pricing that hasn’t kept pace with rising costs
These types of expenses slowly chip away at your margins. Over time, they add up and eat into your profit without you realizing it.
Are You Paying Yourself?
One of the clearest signs of profitability is whether you are consistently and fairly paying yourself. If you are putting in the hours but not seeing personal income from your business, something is off.
Too many business owners pay themselves last, if at all. They reinvest everything or live off what is left over. That is not a sustainable long-term strategy.
Your books should show regular, planned owner’s compensation. If they don’t, it’s worth asking:
Are your prices set high enough to cover both business costs and your salary?
Are you overinvesting in areas that don’t have a clear return?
Are you stuck in a cycle of just getting by instead of growing with purpose?
How to Know If You Are Actually Profitable
If you are judging your business based on your bank balance, you are missing important details. A few key financial reports can help you measure profitability with more accuracy.
1. Profit and Loss Report (P&L)
This is the most basic but essential report. It shows your total income, total expenses, and net profit over a specific period. Reviewing this monthly or quarterly gives you a clearer picture of how your business is performing.
2. Gross Profit vs. Net Profit
Gross profit is revenue minus the direct costs of delivering your product or service.
Net profit is what is left after subtracting all business expenses, including overhead.
Tracking both helps you understand where your money is really going.
3. Trends Over Time
One profitable month doesn’t mean the business is healthy overall. Look at trends across several months or years to get a more accurate view of where you’re headed.
When to Bring in a Bookkeeper
As your business grows, your finances get more complex. Even if you’ve been managing your books yourself, there comes a point where it’s worth bringing in professional support.
A bookkeeper can help you:
Maintain clean, accurate financial records
Track profitability month by month
Identify areas of waste or overspending
Save time so you can focus on serving customers and growing your business
At Bay State Bookkeeping, I work with established businesses throughout Massachusetts. Whether you need monthly support or help getting caught up, I can help you turn your financial data into clarity and confidence.
Final Thoughts
You are already working hard. Let’s make sure your books show that it’s paying off.
Understanding your profitability is not just about checking a box for tax season. It’s about making informed decisions, setting yourself up for long-term growth, and finally feeling in control of your business finances.
If you are not sure how profitable your business actually is, or if you want a second set of eyes on your books, I’m here to help.
Email: admin@baystatebookkeeping.com
Phone: (978) 212-9839
