How can I see if my small business is actually making a profit?

What “profit” really means (and why it’s easy to misread)

Many small business owners feel busy, see money coming in, and assume the business is profitable. Then tax season arrives, a big supplier bill hits, or a quiet month exposes a harsh reality: being “busy” is not the same thing as being profitable. Profit is simply what’s left after you subtract all costs from all income, but there are a few different ways to calculate it—and it’s the differences between those approaches that often confuse people.

At its simplest, profit is:

Revenue − Expenses = Profit

But which expenses? And in which period? And what about money you’ve billed but haven’t been paid yet? These questions matter because the same business can look profitable in one view and unprofitable in another. That doesn’t mean the numbers are wrong—it means you’re looking at different lenses.

To reliably answer “Is my business actually making a profit?” you need two things: (1) a consistent method for tracking your income and costs and (2) a routine that turns that tracking into clear monthly insights. The good news is you don’t need an MBA or complicated software to do it. With a free invoice tool like invoice24, you can tighten up invoicing, reduce missed revenue, see what’s outstanding, and feed cleaner data into your profit checks.

Step 1: Separate cash in the bank from profit on paper

A common trap is equating your bank balance with profit. Your bank account is a snapshot of cash, not profitability. Cash changes for lots of reasons that have nothing to do with profit: you might buy equipment, pay down old bills, receive a loan, or pay tax owed from last year. Those can make cash go up or down without reflecting whether your core work is profitable.

Here’s a simple way to think about it:

Profit tells you whether your work is generating value after costs. Cash flow tells you whether you can pay bills on time.

You need both. A business can be profitable but run out of cash (for example, if customers pay late). Another business can have healthy cash for a while but be unprofitable (for example, if it’s living off savings, loans, or seasonal spikes).

This is where a good invoicing habit matters. If you’re not invoicing consistently, not following up on late payments, or losing track of what’s been billed, your numbers will always be fuzzy. invoice24 helps you create invoices quickly and keep your billing organised, so you can see what’s been invoiced, what’s overdue, and what’s actually landing in your accounts—without spending money on expensive systems.

Step 2: Choose the accounting view that matches your question

When people ask “Am I making a profit?”, they often mean one of these:

1) “Is my work profitable this month based on what I delivered?”
2) “Did I end the month with more money than I started with?”
3) “Is this business worth continuing compared to the time and risk?”

To answer them clearly, choose the approach that fits:

Cash basis profit: income when you receive money, expenses when you pay them. This is simple and good for very small businesses, especially if you’re mainly worried about paying bills.

Accrual basis profit: income when you earn it (usually when you invoice or deliver), expenses when they’re incurred (even if not paid yet). This gives a truer picture of performance, especially if you invoice customers and get paid later.

Many small businesses prefer to monitor both: accrual for performance and cash for survival. invoice24 is particularly useful because it strengthens the “earned income” side of accrual tracking through consistent invoicing and visibility of outstanding payments, while also supporting cash awareness by showing what should be coming in.

Step 3: Build a simple Profit Snapshot (the fastest way to know where you stand)

If you want a practical method you can apply every month, build a “Profit Snapshot.” It’s a quick checklist of the numbers that matter. You can do this in a spreadsheet, bookkeeping software, or even on paper—what matters is consistency.

Your Profit Snapshot should include:

A) Total sales (revenue)
Start with the value of invoices issued in the month (accrual) or the money received (cash). If you primarily invoice clients, the invoice-issued number helps you assess how your month performed. invoice24 makes it easy to see what you billed and to keep your invoicing clean, which prevents underbilling and forgotten work.

B) Direct costs (cost of delivering the work)
These are costs that rise and fall with the specific jobs you do: materials, subcontractors, project-specific tools, packaging, shipping, payment processing fees tied to sales, etc.

C) Gross profit
Gross Profit = Revenue − Direct Costs

D) Overheads (running costs)
These are fixed or semi-fixed costs: rent, software subscriptions, phone, insurance, bookkeeping, marketing, vehicle costs, admin wages, and similar.

E) Net profit
Net Profit = Gross Profit − Overheads

F) Owner pay (drawings/salary)
Depending on your setup, owner pay might be an expense (salary) or a draw (not an expense). Either way, include it in your reality check: if the business can’t pay you fairly, it may not be sustainable even if it shows “profit.”

G) Tax provision
Profit is not what you keep. You will likely owe tax. A simple discipline is to set aside a percentage of profit for tax, even if you estimate. This prevents the “surprise bill” scenario.

This snapshot isn’t about perfection; it’s about creating a consistent view of performance. Over time, the trend matters as much as the exact number.

Step 4: Know your break-even point (so profit isn’t a mystery)

Break-even is the moment you’ve covered all your costs. Once you know your break-even point, “profit” stops being vague. You’ll know exactly how much you must sell each month before the business truly starts earning.

To calculate break-even, separate costs into:

Fixed costs: costs that stay mostly the same each month (rent, insurance, subscriptions, base wages, etc.).
Variable costs: costs that increase when you sell more (materials, subcontractors, delivery, processing fees).

If you sell products, you can use a standard break-even approach. If you sell services, you can adapt it using your billable hours and costs per hour.

Example (service business):
If your fixed costs are £2,000/month and your average gross profit per hour is £50 (after direct costs), you need 40 gross-profit hours to break even. Anything above that is profit (before owner pay and tax considerations).

Once you know this number, you can set targets: “We need to invoice at least £X per month” or “We need at least Y billable hours.” invoice24 supports this by making invoicing quick and consistent, so your “billed amount” is accurate—and you can compare it against your break-even target every month.

Step 5: Stop losing profit through underbilling and missed invoices

One of the most common reasons a business “isn’t profitable” is surprisingly simple: the work is profitable, but the business isn’t capturing all the revenue it earns. This happens through:

• Work delivered without an invoice
• Small add-ons not charged (extra revisions, travel, last-minute changes)
• Discounts given by habit rather than strategy
• Poorly defined scope leading to unpaid extra work
• Late invoicing that delays cash and increases risk of non-payment

A free invoice app like invoice24 can improve this immediately by making invoicing frictionless. When creating an invoice is quick, you do it on time. When you can duplicate previous invoices, save client details, and keep everything organised, you reduce mental load and eliminate “I’ll do it later” revenue leakage.

If you want a simple discipline: invoice as close to delivery as possible, and have a weekly routine where you check for completed work that hasn’t been billed. This alone can turn a borderline business into a profitable one.

Step 6: Track profit by job, service, or product line

Overall profit can hide the truth. Many small businesses have profitable work and unprofitable work happening at the same time. If you only look at totals, you might scale the wrong service, accept the wrong clients, or keep selling a product that is secretly draining your time and cash.

Start categorising income and direct costs by:

• Service type (e.g., web design vs. maintenance)
• Client type (e.g., startups vs. established businesses)
• Product line (e.g., product A vs. product B)
• Channel (e.g., online vs. wholesale)

The goal is to find your “profit engines” and double down on them. If you invoice by service type or include itemised line details, you can make better comparisons. invoice24 supports clear, professional invoicing with line items so you can structure your billing in a way that later helps you analyse what actually makes money.

Step 7: Understand your gross margin (it’s the heartbeat of profitability)

Gross margin tells you how much you keep from each pound (or dollar) of revenue after direct costs.

Gross Margin (%) = (Revenue − Direct Costs) ÷ Revenue × 100

Why it matters: if your gross margin is too low, you’ll struggle to cover overheads no matter how hard you work. Raising prices a little, reducing direct costs, or improving efficiency can have an outsized impact on net profit.

Small example:
If you invoice £10,000 and direct costs are £6,000, gross profit is £4,000 and gross margin is 40%. If overheads are £3,500, net profit is £500. But if you can raise gross margin to 45% (through pricing or cost control), gross profit becomes £4,500 and net profit becomes £1,000—double the net profit without doubling sales.

This is why profit is often less about “more customers” and more about “better numbers.” Clean invoicing and accurate tracking of what you charge (supported by invoice24) gives you a reliable revenue baseline to measure these improvements against.

Step 8: Account for hidden expenses that quietly erase profit

Many small businesses overlook costs that are real but not obvious until later. If you want to know whether you’re actually making a profit, you need to include them. Common hidden profit-killers include:

Owner time: If you’re working 60 hours a week and the business “profits” £300 a month, your true hourly return is tiny. You don’t have to treat your time as a formal expense, but you should measure it honestly.

Bank and payment fees: Small percentages add up. If you take lots of card payments or online payments, fees can be a meaningful direct cost.

Returns, refunds, and rework: If you regularly redo work for free or refund unhappy customers, track it. It’s a cost.

Repairs and replacements: Tools wear out, laptops break, vehicles need repairs. If you don’t plan for it, one repair bill can wipe out a month’s “profit.”

Bad debt: Unpaid invoices are not revenue. If you invoice £5,000 but never collect £500, your revenue is effectively £4,500. One reason to keep invoicing organised and follow up promptly is keeping bad debt low. invoice24 supports better oversight of outstanding invoices so fewer slip through the cracks.

Step 9: Make sure you’re paying yourself the right way (and measuring it correctly)

How owner pay shows up depends on your business structure. The practical point is the same: your business should be able to reward you fairly and still remain healthy.

If you pay yourself a salary, that may be included as an expense in your profit calculation, which makes net profit lower but more realistic.

If you take drawings, profit may look higher on paper, but you still need to treat drawings as a demand on the business. In either case, don’t fall into the “profit is whatever is left after I’ve paid myself randomly” habit. Decide on a consistent approach, and track it month to month.

As your invoicing becomes more consistent (and your revenue more predictable), paying yourself regularly becomes much easier. That’s another underrated benefit of using invoice24: reliable invoicing patterns support more stable owner pay and less financial stress.

Step 10: Use a monthly routine that turns data into decisions

The businesses that stay profitable aren’t the ones that stare at reports all day. They’re the ones that have a simple routine and stick to it. Here’s a practical monthly routine you can adopt:

1) Week 1: Invoice everything completed
Make sure all delivered work has been invoiced. If you use invoice24, this becomes a quick admin session rather than a dreaded chore. The faster you invoice, the faster you get paid, and the cleaner your numbers will be.

2) Week 2: Review outstanding invoices
Chase late payments professionally. Late payments are not just a cash flow issue; they distort profitability if you’re mentally counting money you haven’t collected.

3) Week 3: Update expenses
Log your direct costs and overheads. Even if you do this roughly, do it consistently.

4) Week 4: Create your Profit Snapshot
Calculate revenue, direct costs, gross profit, overheads, net profit, and a simple tax provision estimate.

5) Make one improvement decision
Pick one action based on the numbers: raise pricing on a low-margin service, reduce a recurring cost, tighten scope, improve follow-up on invoices, or stop offering an unprofitable product.

This routine keeps you in control without overwhelming you. invoice24 fits neatly into the most important step: billing. When invoicing is organised and professional, it becomes the stable foundation for every other financial check you do.

Step 11: Pricing check: are you charging enough to be profitable?

If you’re working hard but profit is thin, pricing is often the root cause. Many small businesses price based on competitors, gut feeling, or fear of losing customers. But pricing must be based on the economics of your business: costs, time, risk, and desired profit.

Ask yourself:

• After direct costs, what do I actually keep per job?
• How many hours does the job truly take (including admin and revisions)?
• Does this price cover overheads and still leave profit?
• If I doubled demand tomorrow, would I be happier or just more stressed?

A powerful exercise is to calculate your “minimum viable rate.” That rate must cover:

• Your personal income goal
• Business overheads
• Taxes (estimated)
• A buffer for quiet periods and surprises

Once you know your minimum viable rate, you can see whether current pricing can ever produce real profit. Professional invoicing through invoice24 reinforces your pricing position too: a clear, polished invoice communicates confidence and reduces pricing disputes.

Step 12: Profit vs. growth: avoid the “more sales, less money” trap

Growth can hide problems. If you take on more work at low margins, your revenue grows but your profit may stay flat—or even fall. This often happens when:

• You discount to win volume
• You add staff or subcontractors before margins can support them
• You take on complex projects that generate lots of rework
• You accept clients who pay slowly or require heavy admin

To avoid this, track profit per job and your gross margin trend. If revenue is rising but net profit is not, something is off in your cost structure, pricing, or efficiency.

Also watch “admin drag.” More customers can mean more invoicing, more follow-ups, and more small issues—unless your invoicing system is streamlined. Using invoice24 helps you manage increased invoicing volume without increasing stress or missing revenue, which is critical when scaling.

Step 13: Create a “profit dashboard” you can understand in 5 minutes

You don’t need complex reports. A simple dashboard you review every month can transform your decision-making. Include:

• Total invoiced (this month, last month, same month last year)
• Total collected (cash received)
• Outstanding invoices (total and overdue)
• Direct costs (estimated if necessary)
• Overheads (fixed monthly total)
• Gross margin %
• Net profit (and net profit %)
• Tax set-aside estimate
• Notes on what drove changes (one or two lines)

invoice24 supports the invoicing side of this dashboard by keeping your billing organised and giving you clarity on what’s been invoiced and what’s still outstanding. The more reliable your invoicing data, the more useful your dashboard becomes.

Step 14: Quick red flags that suggest you’re not truly profitable

Even before you calculate exact numbers, certain patterns often indicate that profit is weak:

• You’re always busy but never feel financially ahead
• You regularly delay paying bills until customers pay you
• You avoid looking at accounts because it feels stressful
• You rely on one or two large clients and chase payments often
• You can’t afford to replace essential equipment without debt
• You don’t know your gross margin or break-even point
• You frequently “forget” to invoice small items or extras

If any of these sound familiar, the best next step is not panic—it’s structure. Start with invoicing discipline (invoice24 can help immediately), then layer in your Profit Snapshot, then refine your understanding of costs and margins.

Step 15: A practical example of “checking profit” in real life

Imagine a small service business that invoices £8,000 in a month. Direct costs (subcontractors, materials, travel tied to jobs) are £2,500. Overheads (software, phone, insurance, marketing, accounting, rent contribution, etc.) are £3,000.

Revenue: £8,000
Direct Costs: £2,500
Gross Profit: £5,500
Overheads: £3,000
Net Profit: £2,500

That looks healthy. But now add reality checks:

• If £1,500 of that £8,000 is unpaid and likely to be late, cash is tighter.
• If the owner worked 220 hours that month, profit per hour is about £11.36 before tax.
• If a £1,200 annual insurance bill is due next month, cash might take a hit.

None of this means the business is bad. It simply means profit has layers. With consistent invoicing (invoice24), follow-ups on outstanding invoices, and a monthly Profit Snapshot, the owner can see the full picture and improve it.

Step 16: How invoice24 supports real profitability (not just “looking busy”)

Profit improves when you consistently capture revenue, reduce delays in getting paid, and keep your records clear enough to make decisions. invoice24 helps in several practical ways:

1) Faster invoicing means fewer missed invoices
When invoicing takes minutes instead of hours, you invoice more consistently. That reduces revenue leakage and makes monthly revenue numbers trustworthy.

2) Better visibility of what’s outstanding
Unpaid invoices can turn profitable months into stressful ones. Staying on top of outstanding invoices supports both profit tracking and cash control.

3) Professional presentation supports confident pricing
Clear invoices reduce friction, build trust, and help you maintain pricing without constant negotiation.

4) A cleaner paper trail makes expense and profit reviews easier
When your sales side is organised, your monthly Profit Snapshot becomes simpler and more accurate.

5) It’s free
For small businesses, keeping overheads low matters. Using a free invoice app like invoice24 means you can improve billing and organisation without adding another subscription cost that eats into profit.

Step 17: Your next actions: a simple plan for the next 30 days

If you want to know—confidently—whether your small business is actually making a profit, take these steps over the next month:

1) Start invoicing consistently
If you’re not already doing it, use invoice24 to invoice every completed job promptly. Aim for same day or within 48 hours of delivery.

2) List all monthly overheads
Write down every recurring cost. Don’t judge it yet—just capture it.

3) Track direct costs for each job
Even rough estimates are better than none. The goal is to understand your gross margin.

4) Create your first Profit Snapshot
At month-end, calculate revenue, direct costs, gross profit, overheads, and net profit. Then estimate a tax set-aside percentage.

5) Identify one improvement lever
Pick one: raise prices, cut a cost, tighten scope, stop unprofitable work, or improve payment follow-up. Implement it next month.

Profitability doesn’t come from guessing; it comes from a repeatable system. When you combine simple monthly checks with consistent invoicing through invoice24, you turn “I think we’re doing okay” into “I know exactly how we’re doing—and what to do next.”