How do I know if my business is actually making money?
The question feels simple but most business owners can’t answer it with confidence. Money comes in, money goes out, and somewhere in between you hope there’s something left. That’s not the same as knowing.
Start with the difference between cash and profit. Cash in your bank account doesn’t mean you’re profitable. That money might be from a recent payment that needs to cover bills due next week. It might include sales tax you collected that belongs to Virginia. It might be sitting there because you haven’t paid vendors yet. Cash flow tells you what you can spend right now. Profit tells you whether your business model actually works.
Your income statement is the document that answers this question. Also called a profit and loss or P&L, it shows revenue at the top, subtracts all your expenses, and leaves you with net income at the bottom. Positive number means you made money in that period. Negative means you lost money. But that number only means something if your books are accurate. Every expense needs to be recorded and categorized. Revenue needs to be tracked when it’s earned, not just when cash arrives. If transactions are missing or categorized wrong, your P&L is fiction.
A few practical questions to ask yourself:
Can you pay yourself consistently? Not just when there’s extra cash, but a regular amount that reflects the value of your work. If you can’t take a consistent draw or salary, the business might look profitable on paper but isn’t generating enough to sustain you. And if you’re working sixty hours a week without paying yourself, any profit showing on your books is really just unpaid wages you’re owed.
Do tax bills surprise you? If you owe significantly more than expected at tax time, you probably weren’t tracking profitability accurately during the year. Profitable businesses set aside money for taxes because they know it’s coming.
Are you using credit cards or loans to cover operating expenses? Occasional borrowing for growth is normal. Regularly borrowing to make payroll or pay vendors is a sign you’re spending more than you’re earning.
Do you know your margins? If you sell a product or service for $100, how much is left after direct costs? After overhead? If you can’t answer that, you don’t really know what’s profitable and what’s just generating activity.
The honest answer to your question requires accurate financial records. Monthly bookkeeping that reconciles your accounts, categorizes expenses correctly, and produces reliable financial statements. Without that foundation, you’re guessing. You might feel busy and assume that means profitable, but feeling isn’t knowing.
If you’re not sure whether your books are giving you the real picture, that’s the place to start. Many small businesses in the Richmond area operate for years on gut feeling before finally getting their records in order. Once you have bookkeeping services in Richmond producing accurate reports, look at your income statement. The number at the bottom tells you whether you’re making money. Everything else is just a feeling.
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More Questions
How often should I update my books?
Weekly is the standard for most small businesses. Monthly is the minimum. Going longer than a month means losing context on transactions and letting errors compound.
Read answerWhat financial numbers should I review before hiring?
Review your cash reserves, monthly revenue trends, profit margins, and the true cost of employment before hiring. You need enough cash to cover several months of payroll and consistent revenue to support the ongoing expense.
Read answerHow do I track fees from Shopify, Amazon, and PayPal?
Record gross sales and fees separately instead of just booking net deposits. Each platform provides settlement reports that break down exactly what they charged you, which you need for accurate margins and proper tax deductions.
Read answerHow do I handle overtime pay correctly?
Non-exempt employees must receive 1.5 times their regular rate for hours worked over 40 in a workweek. The tricky parts are calculating the regular rate correctly and making sure employees are classified properly.
Read answerHow do I record Shopify sales in QuickBooks?
Record gross sales separately from the bank deposit since Shopify deducts fees and refunds before paying you. Use a clearing account to track what Shopify owes you, then match payouts to your bank deposits.
Read answerHow do I calculate my food cost percentage?
Divide your cost of goods sold by your food sales, then multiply by 100. The key is calculating COGS accurately using beginning inventory plus purchases minus ending inventory. Most restaurants target 28% to 35%.
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