How to Measure Your Business’s Health Using Adjusted Net Profit

By Andy Mulholland

He has a background in leading a top real estate team for over a decade and an understanding of the critical role of clear financials, Andy, along with his wife Ellyn, a seasoned real estate CFO, co-founded Simple-Numbers.

Many real estate teams don’t know their true profit, often assuming tax reports tell the full story, but those reports are built for taxes, not business health. The truth is, those reports are designed for tax purposes, not to accurately reflect the health of your business. Today, I’ll explain what adjusted net profit means and why it’s the number that truly matters.

What does an adjusted net profit really mean? Adjusted net profit shows the actual health of your business. It removes the tax tricks and adds back the things that distort your numbers. The goal isn’t to minimize taxes but see if your business is truly profitable.

Why your tax numbers don’t show the full picture. Your CPA’s job is to lower your taxable income. That’s smart for taxes, but it can make your business look weaker than it is. For example, many owners run extra expenses through the business to reduce taxes. That inflates your costs and hides your real profit.

Even your own salary can be misleading. If you pay yourself through your S Corp, that’s not really an expense. It’s a profit you’re paying yourself to satisfy tax rules. When that stays on your books as an expense, it makes your profit look smaller than it really is.

How to see your real profit? Imagine stepping out of production. If you had to pay one of your agents to handle your personal deals at your current split, how much would that cost? That’s your “unrealized cost of sale.” Subtract that from your current profit. Then, add back your salary and any personal or indirect expenses that were included. Here’s the simple formula:

Adjusted Net Profit = Net Profit on Paper – Cost to Replace Your Production + Owner’s Salary + Indirect Expenses

This gives you a clear picture of what your business actually earns after removing the tax adjustments.

How to check your profit margin? Next, divide your adjusted net profit by your total revenue. Use the total revenue your team produced, not just what hit your bank account. For example, if your adjusted profit is $100,000 and your team’s total revenue is $1,000,000, your profit margin is 10%.

What does a healthy business look like? Strong real estate teams usually have profit margins between 20% and 25%. If your number is lower than that, your business may not be as strong as it seems. Many team leaders find that if they stop selling homes themselves, their business would actually lose money, and they never realize it.

What should you do next? Start by looking at your numbers every month, not just at tax time. Use the adjusted net profit formula to see what’s really happening in your business.

• Run the calculation monthly. It helps you catch problems early instead of waiting until year-end.
• Track where money goes. Group expenses into clear categories so you can see what’s working and what’s wasteful.
• Test your business without you. Ask yourself if it would still make money if you stopped selling.

When you do this, you’ll see exactly where your business stands. You’ll find hidden costs, spot real profit, and make decisions with confidence. Adjusted net profit keeps your focus on what matters most, building a business that stays healthy and earns even when you’re not closing the deals yourself.

Stop letting unclear numbers hold your business back. It’s time to see your finances the way a real estate business should. Partner with a bookkeeping service designed specifically for real estate teams and agents.

I’ll help you uncover your true profit, track the right numbers, and build a strategy that supports long-term growth. Book a strategy call today, and let’s make sure your business is as strong behind the scenes as it is in the market.