Is Your Business More Profitable Than It Was This Time Last Year?
Your revenue is up.
The company is busier.
You have more employees, more customers, more jobs, or more locations than you did a year ago.
From the outside, the business looks like it's growing.
But there's another question an established business owner should be asking:
Is the company actually more profitable than it was this time last year?
Growth and profitability aren't the same thing.
A company can generate significantly more revenue while also adding payroll, overhead, software, vehicles, facilities, management, insurance, and other costs.
By the time those additional costs are accounted for, the company may be doing considerably more work without keeping considerably more money.
That's why fall is a good time for a year-over-year profit check.
DIRECT ANSWER
To determine whether your business is more profitable than it was this time last year, don't compare revenue alone.
Review:
01 — Revenue
02 — Gross Profit
03 — Gross Profit Margin
04 — Overhead
05 — Net Profit
Then investigate why those numbers changed.
The goal isn't simply to determine whether the company got bigger.
It's to determine whether the company got stronger.
THE FALL PROFIT CHECK
1. Compare Revenue
Start with the number most business owners already know.
How much revenue has the company generated year-to-date?
Then compare it with the same period last year.
For example:
Last Year YTD Revenue: $1.8 million
This Year YTD Revenue: $2.2 million
That's $400,000 in additional revenue.
But don't stop there.
The next question is:
What did it cost you to generate that additional $400,000?
Revenue growth tells you the company sold more.
It doesn't tell you whether the company became more profitable.
2. Compare Gross Profit
Next, look at gross profit.
Gross profit helps you understand what remains after the direct costs associated with producing or delivering what you sell.
Depending on your business, those costs might include:
Direct labor
Materials
Inventory
Subcontractors
Job-specific costs
Other direct costs
If revenue increased substantially but gross profit didn't improve at a similar pace, investigate why.
You may be selling more while spending considerably more to deliver the work.
3. Look at Gross Profit Margin
The dollar amount matters.
The percentage matters too.
Gross profit margin helps you see how much of each revenue dollar remains after direct costs.
For example, imagine the company generated more revenue this year but experienced:
Higher material costs
More overtime
Poor job costing
Excessive discounting
Underpriced services
An unfavorable sales mix
Revenue may still look impressive.
But the margin can reveal that the additional work isn't producing the same financial result.
4. Review Your Overhead
Growth often creates overhead.
You hire managers.
Add software.
Lease additional space.
Purchase vehicles.
Increase insurance.
Add administrative staff.
Bring in professional services.
Upgrade systems.
Some of those investments may be exactly what the company needs.
But established businesses should know what that growth is costing them.
Compare overhead this year with the same period last year.
Then ask:
Which costs increased?
Why did they increase?
Did the additional expense create enough value?
Are we carrying costs that no longer make sense?
An expense doesn't have to be unnecessary to deserve scrutiny.
5. Compare Net Profit
Now get to the bottom line.
After everything the business did this year:
Did the company actually keep more?
If revenue increased 20% but net profit barely changed, that's something worth investigating.
It doesn't automatically mean the business made a bad decision.
Maybe the company intentionally invested in infrastructure.
Maybe you hired ahead of anticipated growth.
Maybe there was a major one-time expense.
Maybe you're building capacity that hasn't produced its full return yet.
That's why the number isn't the conclusion.
It's the beginning of the conversation.
MORE REVENUE VS. MORE PROFITABLE
MORE REVENUE
More sales
More customers
More jobs
More transactions
More money moving through the company
MORE PROFITABLE
Revenue increased
Direct costs are controlled
Margins are understood
Overhead is intentional
More of the revenue reaches the bottom line
A company can accomplish both.
But one doesn't guarantee the other.
ASK WHY
Once you've compared the numbers, don't stop at whether they increased or decreased.
Ask what caused the change.
If profit improved, determine what contributed to it.
Was it:
Better pricing?
Higher-margin work?
Improved productivity?
Better purchasing?
Reduced overtime?
Improved job costing?
More efficient systems?
Better utilization?
If profit declined, investigate that too.
Was it:
Payroll?
Materials?
Pricing?
Overhead?
Discounts?
Inefficient operations?
Unprofitable customers or projects?
A change in sales mix?
Knowing what changed is useful.
Knowing why it changed is strategic.
REALITY CHECK
More revenue can hide a lot.
A rapidly growing company may look successful because sales continue climbing.
But if margins are shrinking, overhead is accelerating, or profit isn't keeping pace, growth can create more complexity without creating the financial return you expected.
That doesn't mean growth is bad.
It means growth should be measured by more than revenue.
For an established company, the question isn't simply:
“How big did we get?”
It's:
“Did getting bigger make the business stronger?”
CEO ACTION STEP
Before you build next year's growth plan, compare this year with the same period last year.
Review:
Revenue: $________
Gross Profit: $________
Gross Profit Margin: ______%
Overhead: $________
Net Profit: $________
Then ask:
What changed?
Why did it change?
And what should we do differently because of it?
Because your next revenue goal shouldn't be based only on getting bigger.
It should be based on building a more profitable business.
This article is for general educational purposes and is not individualized financial, accounting, tax, or business advice.
