Important Questions About Net Income

33% of businesses fail within ten years, 45% fail within the first five, and 20% fail within the first year of being open.

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.

Net Income Formula Breakdown

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.

Important Questions

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;

• When was the last time I looked at my financial statements? Have I done any market or industry research? If so, what is the market forecast? What risks does the industry bring? Understanding these questions can better help with future planning because money matters.
• Do I know my business? What is the management structure, how strong is it, and how well does management lead? How do I want to grow, and what action steps are being taken to move forward in the timeline? What does the big picture look like, and what does my business offer that others do not?
• How are you flexible in adapting to a changing business environment? Who is the competition? Be confident in your business and the services it provides.

Fractional CFO Application Of Net Income:

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.