How Do You Tell if Your Business Is Profitable?

In this post, we’ll break down how to know if your business is truly profitable. Not just what your accountant tells you at tax time or what your bank balance looks like today, but whether you’re consistently generating profit—and keeping it. For founders leading businesses between $3 million and $20 million in revenue, profit can feel deceptively straightforward. But without understanding how it’s measured and where it’s being earned or lost, you risk being blindsided by performance issues that don’t show up until it’s too late.

Key Takeaways

• Profit is more than what’s left after expenses—it’s a measure of efficiency and financial health

• A profitable business knows its gross margin, operating margin, and net income

• Bank account balances and “busy-ness” are not reliable indicators

• You need timely financial reports and clarity on what’s driving (or eroding) results

What Profit Really Means

Profit, at its core, is the money your business keeps after paying all of its expenses. But there are different types of profit, and knowing the difference matters.

• Gross profit shows what’s left after direct costs (like labor and materials)

• Operating profit accounts for overhead like payroll, rent, and software

• Net profit reflects the final bottom-line result after taxes, interest, and other costs

You can be profitable at the gross level but unprofitable at the net level if your overhead is bloated or your pricing doesn’t cover the full cost of doing business. That’s why it’s critical to look beyond “sales minus expenses” and examine margin structure and cost layers.

Start With Your Financial Statements

The best way to determine if your business is profitable is to look at your income statement (also called a profit and loss statement, or P&L). This report outlines your revenue, expenses, and profit over a given period—typically monthly, quarterly, and annually.

If you're truly profitable, your P&L will show:

• Positive net income over multiple periods—not just one lucky quarter

• Consistent or growing gross margins (typically 30–70% depending on your industry)

• Healthy operating margins (at least 10–20% in most service-based businesses)

• Limited reliance on one-time cost cuts or financial tricks to show profit

Many business owners only look at top-line revenue or whether they “made money last month.” But true profitability is measured over time, across segments, and with full transparency.

Why Cash in the Bank Isn’t the Full Story

It’s easy to assume that if your bank account is growing, your business must be profitable. But that’s not always the case. You might have collected a big invoice or loan, but still be running at a loss. Or you could be delaying payments and building short-term cash at the expense of long-term stability.

Real profit is earned—not borrowed, deferred, or boosted by timing. To know if your business is truly profitable, compare your cash flow statement with your P&L. Are your profits being converted into actual cash? Are receivables turning into deposits? Are expenses being paid on time?

A profitable business not only earns money—but holds onto it and puts it to work.

Break Down Profit by Segment

Even if your business is profitable overall, there may be areas that are dragging you down. That’s why we recommend analyzing profit by segment:

• Which products or services generate the highest margins?

• Which customers are the most profitable?

• Which departments or teams produce the best financial results?

You might discover that a flagship offering is only breaking even—or that a small niche product is driving outsized profit. This insight helps you double down on what works and trim what doesn’t.

At Coltivar, we work with clients to break down margins across lines of business and customer types, so they can make data-driven decisions that improve overall profitability without guessing.

Use Forecasts to Stay Ahead

Knowing that you’re profitable right now is important—but knowing whether you’ll stay profitable is where strategy kicks in. Build a 12-month financial forecast that tracks revenue, gross margin, operating costs, and net income based on realistic assumptions.

With a forecast in place, you can test decisions before you make them:

• What happens if labor costs rise?

• How does a price increase impact profit?

• Can we afford a new hire this quarter?

Profitability isn’t just about what happened last month. It’s about knowing where your business is headed—and being able to adjust early if needed.

Final Word: Profit Is a Discipline, Not a Mystery

You don’t need to guess whether your business is profitable. The numbers are there—if you know where to look, how to read them, and what actions to take.

A truly profitable business doesn’t just grow—it earns healthy margins, converts them into cash, and reinvests with confidence. Whether you’re reviewing your financials monthly or building a long-term growth plan, profit should be at the center of your decisions—not just an afterthought.

At Coltivar, we help founders create financial clarity, so profit becomes something you build on purpose—not something you hope is there at the end of the month.

Want to find out if your business is truly profitable—and how to make it more so?
Book a Strategy Review and get a clear look at your margins.