09/28/2026
# How Do I Know If My Business Is Actually Making Money?
**How do you know if your small business is actually making money?** Having high sales doesn't necessarily mean your business is profitable. To understand your company's financial health, you need to look at your profit margin, expenses, liabilities, and accurate financial statements.
As an accounting professional who works with business owners on bookkeeping and tax returns, I've seen firsthand how a business can have impressive sales numbers and still struggle financially.
The problem is often not a lack of sales.
**It's that too much money is going out of the business.**
Here are five things every small business owner should understand when determining whether their business is actually profitable.
# # 1. High Sales Don't Necessarily Mean Your Business Is Profitable
One of the biggest misconceptions I see is that high sales automatically mean a business is doing well.
Unfortunately, that's not always the case.
A business can generate a tremendous amount of revenue and still have very little profit if the cost of operating the business is too high.
Some of the areas I look at when reviewing a business's financial performance include:
* Product and inventory costs
* Cost of goods sold
* Payroll
* Advertising
* Operating expenses
* Profit margins
* Other business expenses
If you're spending too much money to generate your sales, there may not be enough profit left to pay your bills, cover payroll, pay yourself, and continue growing the business.
For example, a company could increase its sales substantially but see very little improvement in its bottom-line profit if its product costs, payroll, or other expenses increase at the same time.
That's why **revenue and profit are two very different things.**
Revenue tells you how much your business sold.
Profit tells you how much money is left after your business expenses.
# # 2. Look at Your Profit & Loss Statement
One of the first financial reports I recommend business owners review is their **Profit & Loss Statement**, commonly called a P&L.
Your P&L shows your operating sales and costs and helps you understand how much profit remains after those expenses.
It can help answer important questions such as:
* How much did my business sell?
* What did it cost to generate those sales?
* How much am I spending on payroll?
* How much am I spending on advertising?
* What are my other operating expenses?
* How much profit is actually left?
However, your Profit & Loss Statement does not tell you everything about your business's financial position.
Income taxes, loans, past-due bills, and other liabilities are important financial obligations that also need to be considered.
That's why you also need to understand your **Balance Sheet**.
# # # What Does a Balance Sheet Tell You?
A Balance Sheet provides information about your company's **assets and liabilities**.
Looking at your P&L and Balance Sheet together gives you a much more complete picture of your business.
Your P&L can help you understand how your business is performing operationally, while your Balance Sheet helps you understand what your business owns and owes.
If you're only looking at your bank account or your sales numbers, you're missing important information.
# # 3. Your Bookkeeping Needs to Be Accurate
Another major factor is the accuracy of your bookkeeping.
I've seen many situations where bank accounts were not reconciled properly. I've also seen liabilities that were not stated properly.
These may sound like technical bookkeeping issues, but they can significantly affect the way a business owner understands their financial situation.
If your bookkeeping isn't accurate, your financial statements may not accurately reflect what's happening in your business.
That can lead to poor decisions.
You might think you have more money available than you actually do. You might not fully understand what your business owes. Or you might make spending and hiring decisions without having a clear picture of your company's finances.
This is one reason **professional bookkeeping can be so valuable to a small business owner**.
Accurate bookkeeping isn't just about entering transactions into QuickBooks or another accounting system.
It's about making sure your financial information is accurate enough to help you make important business decisions.
# # 4. A Business Can Have Incredible Sales and Still Struggle
I remember a client who had incredibly high sales.
If you looked only at the revenue, you might have assumed the business was doing extremely well.
But when we looked deeper, there was a significant problem.
The business was purchasing its products at too high of a cost. The profit margins on those products were much too thin.
The company was selling a lot, but there wasn't enough money left after paying for the products to comfortably pay bills, cover payroll, and still make a reasonable profit.
This is a perfect example of why **high sales don't necessarily mean a business is profitable**.
The owner could have continued focusing on increasing sales, but if the company wasn't making enough money on each sale, simply selling more wasn't necessarily going to solve the underlying problem.
Sometimes the more important question is:
**"How much profit am I actually making on what I'm selling?"**
Understanding your profit margin can help you determine whether your pricing and costs are allowing your business to generate enough profit to succeed.
# # 5. Accurate Financial Information Helps You Make Better Business Decisions
This is ultimately why accurate bookkeeping and financial reporting are so important.
Once you have the correct financial information at your fingertips, it becomes much clearer what you need to do to increase your profit.
Maybe you need to change distributors because you're paying too much for your products.
Maybe you're spending too much money on advertising.
Maybe your payroll is too high.
Maybe your pricing needs to change.
Or perhaps there is another area of the business where you're spending more than you realized.
When your financial information is accurate, you can make decisions based on facts instead of assumptions.
You can begin asking questions such as:
* Where is my business making money?
* Where are we losing money?
* Are our profit margins high enough?
* Are our product costs too high?
* Is our payroll appropriate for our revenue?
* Are we spending too much on advertising?
* How much can the business afford to pay the owner?
* What expenses can we reduce without hurting the business?
* What needs to change to increase profitability?
**The correct information makes these decisions much clearer.**
# # Why Accurate Bookkeeping Matters for Small Businesses
For many small business owners, bookkeeping can feel like a task that simply needs to be checked off the list.
But your bookkeeping is much more than that.
Your financial records provide the information you use to make decisions about your business.
If your books aren't reconciled properly, your liabilities aren't recorded correctly, or your expenses and income aren't being accurately reported, you may not have a reliable picture of your business.
Accurate bookkeeping gives you a stronger foundation for understanding your profit, preparing your tax return, planning for taxes, and making financial decisions.
And when your books are accurate and up to date, you don't have to guess what is happening in your business.
You can see it.
# # The Bottom Line: Don't Confuse Sales With Profit
If your business has high sales but you're still struggling to pay bills, cover payroll, or pay yourself, it's time to look beyond revenue.
Start with your **Profit & Loss Statement and Balance Sheet**.
Look at your product costs, payroll, advertising, operating expenses, liabilities, and profit margins.
Most importantly, make sure the bookkeeping behind those reports is accurate.
I've seen businesses with impressive sales struggle because their profit margins were simply too thin. I've also seen how having accurate financial information can make it much clearer where a business needs to make changes.
**Your goal isn't simply to sell more. Your goal is to build a business that is profitable and financially sustainable.**
At **CRF Accounting Solutions**, we help small and growing businesses with bookkeeping and tax support so business owners can better understand their financials and make informed decisions.
If you're a business owner in Oklahoma City and you're not sure what your financial statements are really telling you, it may be time to take a closer look at your books.
**Accurate books can give you the information you need to make better decisions about your business.**
