Revenue attracts attention, but profit shows what a business earns after its expenses. To use it well, you need to distinguish profit from your bank balance and from a margin that takes only some costs into account.
At a glance
- The result for a period is total income minus total expenses.
- A positive result is a profit; a negative result is a loss.
- Operating profit, pre-tax profit and net profit measure different stages of the result.
- Profit may be tied up in unpaid invoices or investments: it is not necessarily available as cash in the bank.
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What is business profit?
Profit is the positive difference between the income and expenses recognised for a period. Sales are usually the main source of income, but other income may also contribute.
Expenses include the cost of goods sold, salaries, rent, depreciation and finance costs. Do not treat “costs” and “expenses” as though they are always separate categories: the same amount must not be deducted twice.
The income statement brings these items together according to their nature and accounting presentation.
Which profit measures should you distinguish?
Operating profit
This measures the performance of operations based on the items included. It should not be confused with profit after all financing and non-operating items.
Profit before tax
This includes income and expenses recognised before income tax. It is therefore not necessarily the same as operating profit.
Net profit
This is the result after all income and expenses for the financial year. For a Swiss LLC or limited company, it includes the company’s corporate income tax. A sole trader’s personal income tax is not a comparable deductible business expense.
Revenue, gross profit and net profit
Your revenue measures sales. Gross profit deducts a defined category of costs. The final profit takes all relevant expenses into account.
A business can have a healthy gross profit margin and still lose money because overheads are too high. Conversely, a business with modest revenue can be profitable with the right cost structure.
Compare financial years as well. A one-off gain can improve the result for a year without indicating a lasting improvement in operations.
Why is profit different from available cash?
A customer may not yet have paid an invoice. An investment may have used cash without becoming an expense in full immediately. Repaying the principal of a loan reduces the bank balance but does not reduce profit in the same way as an expense.
This is why profit analysis should be accompanied by a cash flow forecast (in French) and a review of working capital requirements (in French). A profitable business can still struggle to pay its bills.
How is business profit taxed in Switzerland?
For an LLC or limited company, accounting profit is the starting point for the tax calculation, with the required adjustments. The place of taxation, non-deductible expenses, available losses and other circumstances affect the final tax bill.
For a sole proprietorship, business profit is included in the owner’s personal taxation under the applicable rules. Owner’s drawings (in French) do not reduce that profit.
Depreciation or a provision should not be recorded solely to reduce tax: its accounting basis and tax deductibility must be checked.
How can you improve profitability?
Focus on pricing, worthwhile sales volume, productivity and avoidable expenses (in French). Review the profitability of your products or services before increasing sales indiscriminately.
A cost saving is worthwhile only if it does not destroy more value than it saves. Monitor the results of your decisions and retain enough capacity to serve customers well. When hiring, include the full Swiss employer social security costs in your forecasts.
Turn your profit figures into better business decisions
Calculating profit is a first step. To manage your business, you also need to understand where that profit comes from, how it changes and how much becomes available cash. This helps you set prices, control expenses and plan investments. With our accounting support, you have reliable accounts and someone to help interpret them. The aim is to make decisions on a clear basis, while keeping profitability and your bank balance distinct.
Frequently asked questions
Does a high profit prove a business is well managed?
It is a useful indicator, but you should examine its composition, whether it is recurring and the risks involved. A one-off transaction can change the result substantially.
Can a company distribute all its profit?
Not automatically. A company must comply with the rules on reserves, decisions and financial protection explained in our article on dividends.
Are a sole trader’s drawings a business expense?
No. Drawings reduce the funds left in the business, but they are not a deductible employee salary paid to the owner.
Sources and references
Romain Prieur is a Swiss certified public accountant and the founder of Entreprendre.ch. With over ten years of experience in auditing and advising businesses in Switzerland, he helps entrepreneurs with company formation, accounting and taxation.
How do you calculate business profit?
Profit or loss = total income − total expenses. A positive amount is a profit; a negative amount is a loss.
A worked business profit example
Consider a retailer operating through a Swiss LLC (Sàrl/GmbH) or limited company (SA/AG). This is a fictional monthly example. Amounts are in CHF, exclude recoverable VAT and relate to the same period.
The net profit margin is 4,000 ÷ 50,000 = 8%. The retailer therefore retains CHF 8 of net profit for every CHF 100 of sales in this scenario.
The CHF 500 tax expense is an illustration, not a tax rate applicable to every Swiss company. Purchases paid for during the month are not necessarily the same as the cost of goods sold: stock movements matter. A documented business inventory and stocktake helps substantiate those figures. Likewise, sales and expenses must be allocated to the correct period.