You're profitable over a closed period if the revenue you actually earned exceeds the expenses you actually incurred. This is a backward-looking measurement — pick a period that has already happened (last month, quarter, or year).
Why the bank balance misleads: a bank balance isn't profit. It includes loans, transfers, and money not yet spent, and it excludes bills you owe but haven't paid. A business can have record revenue and still lose money.
Owner's draw is not an expense: for a sole proprietor or single-member LLC, money you take out for yourself is an owner's draw (a distribution of profit), not a deductible business expense (IRS Pub 334). Putting it in the expense column makes a profitable business look unprofitable. Keep draws out of the expense side. Estimates — confirm with your tax professional.
Gross vs net vs margin:
- Gross profit = revenue − direct costs of delivering what you sell.
- Net profit = gross profit − all other overhead (software, insurance, rent, professional fees).
- Margin = profit as a percentage of revenue.
- Healthy gross margin but negative net profit → overhead is the problem. Thin gross margin → pricing is the problem.
Uncategorised spend flatters the bottom line: a P&L is only as honest as the categorisation underneath it. Cash spend that was never captured, charges in a generic bucket, or emailed receipts that never made it into a total all understate expenses — which makes the business look more profitable than it is.
How ExpenseBot helps: it captures and categorises your emailed receipts into a Google Sheet you own, so the expense side of a retrospective P&L is built from actual captured spend rather than memory. It does not forecast, predict, or decide whether you're profitable — it makes sure the spend you already have is counted and sorted.
Full guide: Is My Business Profitable?. See also profit and loss for small business.