- Net profit is the bottom line of the profit and loss: revenue minus direct costs minus operating expenses.
- The figure is only trustworthy after every account is categorized and reconciled.
- Annual payments, payroll timing, big one-off jobs and misrecorded loan payments can distort a single month.
- Compare each month with the previous month and the same month last year.
How do I know how much profit my small business made last month?
Look at a profit and loss statement for last month, built from books that are fully categorized and reconciled. Net profit is the bottom line: revenue minus cost of goods or job costs, minus operating expenses. If the books are not reconciled, that figure can be far off. SmartGrowth Bookkeeping closes each month in QuickBooks or Xero and sends a profit and loss you can trust.
- Make sure every transaction for the month is in the books, from every bank, card and payment platform.
- Check that each one is categorized correctly.
- Reconcile each bank, card and loan account to its statement.
- Record payroll in full, including employer taxes, from your payroll provider's reports.
- On accrual basis, include invoices you sent and bills you received, even if unpaid.
- Run the profit and loss for that month.
| Line on the profit and loss | What it means |
|---|---|
| Revenue (income, sales) | What you billed or sold during the month |
| Cost of goods sold or direct costs | Materials, products and job labor tied directly to sales |
| Gross profit | Revenue minus direct costs |
| Operating expenses | Rent, software, marketing, office staff, insurance and similar |
| Other income and expenses | Items such as loan interest |
| Net profit | What the business earned after everything |
Why the bank balance cannot tell you
The change in your bank balance is not your profit. Customer payments for last month's work may arrive this month, loan principal leaves the account without being an expense, and sales tax collected sits in your account but belongs to the state. These gaps are covered in detail in cash flow vs. profit.
That is why profit comes from the profit and loss statement, and the bank balance is used to check that the books are complete, not to measure how the month went.
Reading last month's profit and loss
Start at the top and work down. Revenue tells you how much business you did. Gross profit tells you whether your pricing covers direct costs; if it shrinks while revenue grows, look at materials, job labor or discounts. Operating expenses show the cost of running the business regardless of sales. Net profit is what remains.
Then compare. Last month against the month before shows direction. Last month against the same month a year ago removes seasonal effects, which matters for businesses like landscaping, retail or tax-season services. If the difference between revenue and net profit itself is unclear, revenue vs. net profit covers it step by step.
What makes one month's profit misleading
- Annual payments recorded in a single month. An insurance premium or software renewal paid once a year makes that month look weak and the others look better than they are.
- Payroll timing. With a biweekly payroll, some months contain three pay dates instead of two.
- Large one-off jobs invoiced at completion, which make one month look strong and the months of work before it look poor.
- Owner draws recorded as expenses, which understate profit.
- Loan payments recorded entirely as expenses, when only the interest is an expense.
- Bills that have not been entered yet, which overstate profit.
- Mixing cash and accrual habits, such as recording sales when invoiced but expenses only when paid.
A bookkeeper can smooth several of these, for example by spreading an annual prepaid expense across the months it covers, so each month reflects its fair share of costs.
Example: one month at a small HVAC company
A two-truck HVAC company opens its software in early October to see how September went. The running profit and loss shows a strong month. Before trusting it, the bookkeeper reconciles the accounts and finds three things.
- A supplier invoice for parts used on September jobs had not been entered, so direct costs were understated.
- The truck loan payment had been recorded as one expense, overstating costs by the principal portion.
- The owner's draw had been categorized as wages, understating profit.
After corrections, the month is still profitable, but gross margin on installs is thinner than the owner assumed because parts costs had risen. That one finding, a pricing question, is worth more than the headline profit figure. It only appeared because the books were reconciled first.
Cash basis or accrual: which profit are you seeing?
On a cash basis, last month's profit is money received minus money paid. On an accrual basis, it is revenue earned minus expenses incurred, whether or not money changed hands. Accrual usually gives a truer picture of how a month went, especially for businesses that invoice customers. Many owners look at both, and your CPA decides which basis the tax return uses.
Profit by job, product or location
A single profit figure for the whole business can hide a lot. A contractor might be making money on remodels and losing it on small repair calls. A restaurant group might have one location carrying another.
QuickBooks offers classes and locations, and Xero offers tracking categories, so the same profit and loss can be broken down by job type, service line or location. Budgeting and profit analysis shows how owners use these reports to decide where to focus.
A quick monthly profit check
- Confirm the month is reconciled before reading anything.
- Note net profit and gross profit.
- Compare both with last month and with the same month last year.
- Look for any expense category that jumped.
- Check whether anything unusual, such as an annual payment or a large job, is distorting the month.
- Write down one question for your bookkeeper and one action for the month ahead.
Done every month, this takes little time and builds a sense of what normal looks like, which makes problems much easier to spot.
How SmartGrowth helps
SmartGrowth Bookkeeping categorizes and reconciles every account each month in QuickBooks or Xero, records payroll and adjustments properly, and delivers a profit and loss alongside the balance sheet and cash flow statement. With monthly financial reports, you know last month's profit, why it changed, and what to look at next.
More questions
What is a good profit margin for a small business?
It varies widely by industry and business model, so there is no single target. The most useful comparison is your own trend over time, along with guidance from your CPA or industry sources on what similar businesses typically see.
Why is my monthly profit different from what my CPA reports for the year?
CPAs make year-end adjustments and apply tax rules that can differ from how the books are kept month to month, for example in how equipment is expensed. The two figures should be reconcilable, and your bookkeeper and CPA can explain any gap.
Can I see profit before the month is finished?
Your software shows a running profit and loss at any time, which is useful for a rough idea. Treat it as provisional until the month is closed and reconciled, since missing transactions and corrections can change it noticeably.
What if last month shows a loss?
One losing month is not necessarily a problem, especially in a seasonal business or after a large annual payment. Look at the reason first. If losses repeat, review pricing, direct costs and the largest expense categories with your bookkeeper.
Do I need an accountant to tell me my monthly profit?
Not usually. A bookkeeper who reconciles your accounts and closes the month can give you an accurate monthly profit and loss. Your CPA comes in for year-end adjustments, tax treatment and planning.