How to Know If Your Business Is Actually Profitable
Introduction
"How is business?" is the wrong question. The right questions are "what is my gross margin?", "what is my net profit after fixed costs?", "how many months of cash do I have?" and "what is my break-even point?". If you can answer those four, you know exactly where you stand.
Table of contents
- Revenue is not profit
- The four numbers you must know
- Reading a monthly report in five minutes
- Business Health Score
- Frequently asked questions
- Conclusion
Revenue is not profit
Gross vs net
Gross margin = revenue minus direct costs. Net profit = gross minus fixed costs and taxes.
Common trap
Owners often confuse a busy calendar with a profitable one. Traffic ≠ margin.
The four numbers you must know
Gross margin %
Anything below 30% for a services business is a warning sign.
Net profit
The number after everything, including your own salary.
Cash flow
Profit on paper does not pay rent — cash does.
Break-even
Monthly revenue needed to cover all fixed costs before you make one euro of profit.
Reading a monthly report in five minutes
Start with cash on hand
This month vs last month. If cash is shrinking without a clear reason, investigate.
Then revenue by category
Which lines drove growth or decline?
Then top expense categories
Anything unusual? Anything trending up?
Finish with KPIs
Margin %, active customers, average invoice size.
Business Health Score
Composite metric
A single 0–100 score derived from margin, cash, growth and fixed-cost ratio.
Trend beats snapshot
A steady 72 is better than a spiky 85. Watch the direction.
Frequently asked questions
How often should I check profitability?
Weekly at a glance, monthly in detail, quarterly for strategic decisions.
Is negative cash flow always bad?
Not necessarily — growth investment produces short-term negative cash flow. Bad is unplanned negative cash flow.
What if my numbers are messy?
That is precisely what Ledger Monkey solves. Start with three months of data and the picture emerges.
Conclusion
Modern financial management is about pushing the boring work to software so the interesting work — the decisions only you can make — gets your full attention. Every article on this blog points to that same idea, and Ledger Monkey is the tool built around it.
Ready to see it for yourself?
You do not need a consultant, an accountant or a spreadsheet upgrade to feel the difference. Start your free trial today. Scan five receipts, connect one supplier, and let Ledger Monkey show you where the money actually goes.