Net Income

Net income equation

Net income reflects the business's profit or loss.  Your net income will give insight into the total profit your business has made at the end of a business period.

To calculate net income, you will need to know the revenue and expenses for a certain timeline. At the early stages of a small and growing business, the net income may indicate a loss. Why? Let's analyze the expenses and revenue, then the reason for the loss in the early days of a business becomes clear.

Revenues refer to sales and other generated income for a business. While Expenses connote the costs of running the business to generate income.

Hence, Net income = Revenues - Expenses.

Since a business spends more at the start, those periods may reflect negative numbers; the business has more expenses than revenues. As the business grows, the narrative should change.