FSME Financepedia

What Is Net Profit?

Net profit is what your business actually keeps after every cost has been subtracted from revenue — including taxes and interest.

What net profit means

Net profit — also called the bottom line or net income — is what's left from revenue after subtracting everything: cost of goods sold, operating expenses, interest, and tax.

Why it matters for small business

Net profit is the money the business has truly earned. It's the figure that funds reinvestment, savings, owner draws, or paying down debt. A business can have impressive revenue and still post a net loss.

Simple formula

Net Profit = Revenue − COGS − Operating Expenses − Interest − Tax

Or, starting from gross profit:

Net Profit = Gross Profit − Operating Expenses − Interest − Tax

Practical example

A small online shop has:

  • Revenue: $20,000
  • COGS: $8,000
  • Operating expenses (rent, software, marketing, part-time help): $7,000
  • Interest on a small loan: $200
  • Tax: $900
Net Profit = $20,000 − $8,000 − $7,000 − $200 − $900 = $3,900

Practical interpretation

A consistent positive net profit means the business is sustainable. A small or negative net profit, even with growing revenue, is a warning sign — costs are likely outpacing pricing or efficiency.

Common mistakes

  • Confusing net profit with cash in the bank. Profit on paper doesn't always equal money available — see Cash Flow vs Profit.
  • Forgetting the owner's salary. If you don't pay yourself a realistic wage, "profit" hides the real cost of running the business.

Need to calculate this? Visit SME Finance Helper.

Related reading

This article is for educational and planning purposes only. It is not accounting, tax, legal, investment, or financial advice.