What is net income vs. cash flow and which should I be looking at for my business?
Your Net Income is the amount you are taxed on for your business. It is found on your income statement in BluSavvy.
Net Income equals sales minus Cost of Goods Sold (the wholesale cost of what you sold, also known as COGS), minus business expenses. So if you sold $1000:
– $500 (COGS)
-$100 Business expenses
$400 Net income – this is what you are taxed on
Cash Flow is what you see in your bank account. So if you sell $1000 and then purchase $900 of new inventory then you have $100 positive cash flow in your bank account. You may think, I only earned $100 since I reinvested in my business and bought inventory. But that is not true from a tax perspective because inventory is an asset not an expense. You are still taxed on the $400 net income.
This is what gets tricky, often times we spend a lot of money on inventory so don’t have money in the bank to pay taxes. You should be looking at your income statement monthly, sending it to your CPA quarterly to pay tax estimates.
The easiest way to create a monthly income statement is using BluSavvy, sign up now by clicking HERE.