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Think of net income as what you have left over in your business after all of your expenses. It’s otherwise known as your profit.

The formula is:

Gross Income – Expenses = Net Income


So let’s say you bill your client $5,000 – the $5,000 is your gross income.

 

And from that $5,000 you have to pay for:

Software – $300

Rent – $1,000

Office Supplies – $200

= Total Expenses – $1,500

 

So – now that we know our gross income and our expenses, we can calculate our net income.

Gross Income – $5,000

Less: Expenses – $1,500

Net Income – $3,500