A recent Xero survey from October 2025 has revealed that nearly two in five small business owners don’t know if their business was profitable in the prior month. With the ease of cloud accounting this is a startling thing to be revealed! However, this might just be a case of business owners not understanding the terms or the reports themselves. With that in mind, we have tried to simplify the terms below.
The first part of the profit and loss to look at is your gross profit. The gross profit is the money left over from your income after you’ve deducted your direct costs for suppling your product. These direct costs will vary depending on the trade you are in, but in general they would be expenses like materials, subcontractors, consultants, wages, packaging etc. Gross profit is a vital statistic as it tells you how much money you are making on your products. While the gross profit will vary depending on each business sector, a general rule of thumb is you want a gross profit of at least 66%. i.e. your gross profit is 66% of your total income.
The next headline figure is your net profit. The net profit is your businesses ultimate bottom line, or your true profit. Net profit considers all of your direct costs but also all your other overheads, such as rent, utilities, marketing and general administration expenses. The net profit shows exactly what you are making after all your costs are taken into account, this being the biggest indicator if your business is profitable. Again, the net profit will vary depending on each business sector, but a general rule of thumb is you want a net profit of at least 66%. i.e. your net profit is 33% of your total income.
If you’d like more help to understand your profits, or even have reports provided to you, please get in touch with us.
