How to Figure Net Business Profit

In the business world, you can use a number of different metrics to gauge the success and profitability of a company. One of the most basic and effective measurements of profitability is the net business profit, sometimes called net business income. When you calculate the net business profit of a company, you come up with a value that represents how profitable the company is after expenses are taken out.

Instructions

1. Calculate the total amount of income that is brought in by the company over the course of a period of time. In many cases, this figure is calculated over the span of a year, while other times the calculations are made on a quarterly basis. This figure is also referred to as the gross income for a business. To calculate it, you simply add up all of the various sources of income for the time period that you are calculating. This could include money generated from sales, investments, licensing, rent and many other potential sources.

2. Determine what legitimate business expenses were incurred during the same period of time. You must calculate the total amount of money that was spent during this timeframe. This includes money spent for employee wages, business leases, rent, cost of goods sold and any other money that was used in the process of doing business.

3. Subtract the total expenses that you calculated from the gross income. For example, if the gross income of the company was $1 million and the total expenses for the company were $600,000, you would be left with a net business profit of $400,000 over that period of time. This is money that can be distributed to owners or shareholders, or reinvested in the company's operations.

References

• Small Business Development Corp.: Components of a Profit and Loss Statement
• Venture Mentors; Understanding Common Business Terms: Gross Sales, Net Income, Owner's Draw and Owner's Equity; Jim Huston