Net income is the final answer on your P&L. Revenue comes in at the top. COGS, operating expenses, interest, and taxes come out. What's left is net income. If it's positive, the business made money that period. If it's negative, it didn't.
Net income vs. cash in the bank
Net income and cash are not the same. A business can show positive net income and still have no cash — because of loan repayments, timing of receivables, or owner distributions. This disconnect confuses many small business owners who look at a profitable P&L and wonder where the money went. The cash flow statement explains the gap.
Net income and owner's pay
If you haven't paid yourself a market-rate salary, your net income is artificially inflated. Greg Crabtree's Simple Numbers framework insists on accounting for owner's pay at market rate before evaluating net income.
What to do with net income
The Simple Numbers Four Forces framework provides a clear answer: first fund taxes, then eliminate debt, then build core capital reserves, then consider distributions.
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