Bookkeeping, controller, and CFO services for small businesses in Chandler and Greater Phoenix.

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How do I know if my business is actually profitable?

The most common mistake business owners make is checking their bank balance and assuming that number reflects profitability. It doesn’t. Cash in the bank can come from loans, delayed vendor payments, or seasonal revenue spikes that haven’t been offset by upcoming expenses yet. A positive bank balance and an unprofitable business can absolutely coexist.

True profitability shows up on your profit and loss statement, sometimes called an income statement. This report takes all your revenue for a given period and subtracts all your expenses. The number at the bottom is your net income. Positive means profitable. Negative means not. Simple in theory, but it only works if the underlying numbers are right.

That’s where most business owners run into trouble. If your books are incomplete, if expenses are miscategorized, or if transactions are missing entirely, then the profit number on your P&L is fiction. You’re making decisions based on numbers that don’t reflect reality. Full-service bookkeeping that includes proper categorization and monthly reconciliation is the foundation for knowing where you actually stand.

Beyond having accurate books, there are a few things to consider when evaluating profitability. First, are you paying yourself? Many small business owners pull money as needed and never record a salary. Whatever is left in the business looks like profit, but it isn’t. Real profitability means the business can pay you a reasonable wage for your work AND still have money left over. If removing an owner salary turns your profit into a loss, the business isn’t truly profitable. It’s just subsidized by you working for free.

Second, understand the difference between gross profit and net profit. Gross profit is revenue minus the direct costs of delivering your service or product. Net profit is what’s left after all expenses, including rent, insurance, software, marketing, and everything else. You might have strong gross margins but still lose money because overhead is too high. Both numbers matter.

Third, look at your numbers monthly rather than waiting until tax season. Annual financial reviews are too late to catch problems. A business can be profitable in some months and lose money in others. Reviewing monthly gives you time to adjust pricing, cut expenses, or address issues before they compound into something worse.

Finally, watch out for profitability on paper that doesn’t match your experience. If your P&L says you’re making money but you’re constantly scrambling to cover bills, something is off. That disconnect usually means there are unrecorded expenses, timing issues with receivables, or debt payments eating into your cash that don’t show as expenses on the P&L.

Knowing your real profitability is not just an accounting exercise. It drives every meaningful decision you make about your business, from pricing to hiring to knowing whether growth is actually helping or hurting you. If you’re unsure about your numbers, working with a bookkeeper in Chandler who can get your books accurate and explain what they mean is the fastest way to get a clear answer.

Bookkeeping for East Valley Small Businesses

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More Questions

How do I know if my books are accurate?

Start with bank reconciliation. If your account balances in QuickBooks don't match your actual bank statements to the penny, your books have errors. From there, review your balance sheet and profit and loss for red flags.

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What is catch-up bookkeeping and when do I need it?

Catch-up bookkeeping is the process of going back and recording, categorizing, and reconciling transactions for months or years that were missed. You need it when your books have fallen behind and no longer reflect what actually happened in your business.

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What's the difference between a W-2 employee and a 1099 contractor?

A W-2 employee works under your direction with taxes withheld from their pay. A 1099 contractor operates independently and handles their own taxes. The distinction affects your costs, paperwork, and legal exposure.

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What happens if my inventory records don't match my physical count?

A mismatch between your records and physical count means your books are showing a different inventory value than what's actually on hand. You need to investigate the cause, make adjustment entries, and tighten your processes to prevent it from happening again.

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Should a contractor use QuickBooks or a construction-specific platform?

For most small to mid-size contractors, QuickBooks handles the actual accounting well when it's set up properly for job costing. Construction-specific platforms are primarily project management tools. Many contractors end up using both.

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How do I set up a chart of accounts for a new business?

Start with the five main account types and customize based on what you actually need to track. Use your accounting software's default template as a starting point, then add or remove accounts so your reports reflect how your business operates.

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Jackrabbit Accounting is a Chandler firm serving small businesses across the East Valley and Greater Phoenix. Led by Sean Larsen, CPA, we provide bookkeeping, controller, and fractional CFO services backed by over a decade of corporate finance and Big 4 accounting experience.

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