A lot of founders tell me the same thing.

"We had a great year."

Then we look at where the profit came from, and it's not all from the work.

What I mean by extras

Anything that boosted your profit but isn't what you earn from doing your job.

A rebate from a supplier. A grant. One enormous project that won't come round again. A refund. A one-off sale of something you no longer need.

None of these are bad. Take the money. But they're not your business model.

Why it matters

Profit is the number most founders use to decide things.

Can we hire? Can I take more out? Can we spend on that campaign?

If your profit includes extras, you're deciding on a number that won't repeat. The business looks healthier than it is. Then next year the extras don't turn up, and it feels like something went wrong.

Nothing went wrong. The number was never real.

How to check yours

It takes about an hour.

Look at the last 12 months of your profit and loss. Go through the income and the costs and ask one question about each big item: will this happen again next year?

If the answer is no, write it down.

Add up the income extras and take them off your profit. Add up any one-off costs and put them back. What you're left with is what your work earns in a normal year.

An example

This one is made up to show the idea.

Say your year shows £100,000 profit. But in that year you got a huge one off project and were lucky enough to receive a grant. Your profit then looks much higher than its likely to be the next year with the same level of sales.

What to do with it

Compare your real number to what you need.

What does the business cost to run? What do you want to take home? What do you want left in the business for growth?

If your real profit covers all of that, you're in good shape and can make decisions with confidence.

If it doesn't, you've found out early. That's the best time. You can look at pricing, costs or the mix of work you take on, before the extras run out.

Make it a habit

Do this once a year at the very least. Better still, do a quick version when you review your monthly numbers.

Keep a running list of anything that looks like a one-off as it happens. At the end of the year the work is already done.

Where to start

Pull up your last 12 months of profit and loss. Circle anything that won't happen again. Work out what's left.

That's the number your business really makes.

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