Back to Basics

Running a business, whether that’s as a contractor or otherwise, it’s vital that you stay on top of the numbers. Knowing whether you’re making a profit and whether or not you have enough cash is vital to ensuring you survive and thrive.

And yet many people we meet really struggle with this. Even when they’re using our fantastic service, it just sometimes seems like a foreign language.

So let’s go back to basics.


Every business has Sales. In accounting terms, these can sometimes be called Revenues or Income. But they’re just sales. Whatever it is that you get paid for doing what you do.

Cost of Sales:

You then may have what are called Cost of Sales, sometimes known as Direct Costs. These are costs you have to incur before you can sell something. In retail it would be your stock. As a designer, it will be the materials you use to make your end product. And so on. Contractors generally don’t have cost of sales unless you subcontract work.

Gross Profit:

We deduct the cost of sales from sales to arrive at Gross Profit – which is how much profit you make on a sale. For instance, if you buy a dress for £50 and sell it for £100, you’ve made a Gross Profit of £50.


Every business then has Overheads. These can also be known as Operating Costs or Indirect Costs. These are the other costs you incur to run your business, such as wages, rent, rates, power, IT, phones, marketing etc. It will also include accountancy fees!

Net Profit:

To arrive at your Net Profit, we deduct the total Overhead cost from your Gross Profit. Simples! And in general, it’s this Net Profit figure that you pay tax on, but how that tax is calculated is a whole other blog altogether!

Retained Profit:

For limited companies, and definitely for the majority of contractors, you will pay yourself mainly by Dividends. This is the most tax efficient way – meaning more money in your pocket. Those dividends are deducted from your Net Profit to arrive at the final figure – Retained Profits.

If this all still feels too complicated, then why not pop in and see us, or pick up the phone. We’d be delighted to run through it with you. Simple! Get in touch today!

More Blogs

Cash Flow Management for Your Self Employed Business: Tips and Strategies

Cash flow management revolves around regulating the funds entering and leaving your business. This supervision allows you to maintain a healthy balance, ensuring your business can cover its operational costs and future investments. As a self-employed business owner, mastering cash flow management is critical for your venture’s longevity and profitability.

Accounting Team

Property Accounting Errors: Common Mistakes by Property Investors and How to Prevent Them

The success of property investment can hinge on many factors, and one that often gets overlooked is the crucial role of accurate property accounting. Missteps in this area can lead to serious financial and legal implications. This blog post explores common property accounting errors that property investors make and offers practical advice on how to prevent them.

Accounting Team

The Importance of Regular Financial Health Checks for Property Investments

Financial health checks for property investments are integral. Like any financial endeavour, property investments require meticulous management for fruitful returns. A core aspect of this management is these regular checks. This blog delves into the significance of such assessments and how they can bolster your property investment success.

Accounting Team