The Business Worldwide, Author at The Business Worldwide

What Is Gross Income? Here’s Everything to Know.

Posted on June 20, 2023February 17, 2025 by The Business Worldwide

I’m sure your accountant has asked you before for your gross and net income when preparing your tax return, right?

But what exactly is gross income, and how does it differ from net income?

Continue reading for everything you need to know about gross income and how it applies to you.

What is gross income?

For individuals, your gross income is the total amount of earned income that you can find on your paycheque before any taxes and deductions are taken off.

It considers all sources of income from your wage, rental income, interest income and even dividend profits.

Businesses calculate gross income slightly differently. Their gross income is also called gross profit, the income they make from selling their product or service minus the actual cost of those products sold.

How is gross income calculated?

Now that you know what gross income is, how do you calculate it?

You may need to calculate your total gross income to acquire a loan from the bank to satisfy the lender.

Your potential landlord may require it to ensure you can afford the rent.

You may even be applying for a credit card, and they require your gross income amount before approving your application.

Continue reading for how both individuals and businesses can calculate their gross income.

Gross income calculation for individuals

As gross pay for individuals includes numerous forms of income from employment, rental income, interest income and dividend payments, this must be considered when calculating your gross income.

Example:

If Alex earns an annual income of $100,000 a year at his office job and he also earns $70,000 in rental income from real estate he owns, $10,000 from dividend profits and $5,000 in interest income on his savings account his calculation would be as follows:

Gross Income = $100,000 + $70,000 + $10,000 + $5,000 = $185,000

Gross income calculation for businesses

A business’s gross profit is on the income statement of the business.

It is the business’s annual gross margin before taking off any indirect expenses, interest and taxes.

This calculation represents the business income earned from selling goods or services after deducting any tax deductions regarding the direct costs that the business incurred.

Examples of direct costs can include:

Employee labor costs.
Equipment used in the production phase.
The cost of supplies.
The cost of the raw materials.
Any required shipping costs.

Example:

If the total revenue of Brian’s Hardware Store totaled $1,300,000 and their expenses were as follows, what is their gross income?:

Material cost: $150,000
Supply cost: $60,000
Equipment cost: $340,000
Labor cost: $150,000
Shipping cost: $100,000

To calculate the gross profit, revenue minus the cost of goods sold (COGS), of Brian’s Hardware Store, the calculation is as follows:

Gross Income = $1,300,000 (COGS) -$150,000 – $60,000 – $340,000 – $150,000 – $100,000 = $500,000

What is net income?

Another question your accountant may ask you is what your net income is.

Your net income is your gross income minus any taxes and deductions taken off by your employer.

Essentially, you can see your take-home pay on your pay stub on payday.

Net income represents your actual total earnings and is what you can use to give yourself an idea of the amount of money you can spend throughout the month.

It is also a good indicator of how much you might pay in taxes every year.

How do I calculate my net income?

To calculate your net income, first, take your gross income and deduct the following expenses:

Income taxes.
Health insurance payments.
Retirement account contributions.
Social Security and Medicare taxes.
Loan payments.
Child support payments.
Alimony payments.
Wage garnishments.

Example:

If Susan’s annual salary is $150,000 a year as a lawyer, and she has the following expenses, what is her net income?:

Income taxes: $8,000.
Health insurance payments: $2,000.
Retirement account contributions: $5,000.
Loan payments: $10,000.

To calculate Susan’s net income, the calculation is as follows:

Net Income = $150,000 – $8,000 – $2,000 – $5,000 – $10,000 = $125,000

What is taxable income?

You will use your gross income when you fill out your state and federal income tax papers.

Next, you can deduct any applicable deductions to determine how much you may owe.

Remember that your gross income is not the same as your taxable income.

This is because some sources of income are not counted as part of your gross income for tax purposes.

Some sources of income that are not taxable include:

Life insurance payouts.
Specific Social Security benefits.
State or municipal bond interest.
Certain inheritances or gifts.
401(k) contributions.
Health savings account contributions.
Educator expenses.

Your taxable income is also what may be used to determine what tax bracket you are in.

What isn’t considered taxable income?

While most sources of income are considered taxable, there are a few cases where income isn’t taxed.

Partnership income

Typically, a partnership is not considered to be a taxable entity.

The distributive share of partnership income, such as the gains, losses, deductions or credits, is usually based on the partnership agreement.

You must report these on your tax return regardless of whether they have been distributed.

Even though a partnership typically doesn’t pay tax, it is still required to file an information return.

S corporation income

Typically, an S corporation does not have to pay any tax on its income.

Instead, the income, losses, deductions and credits are passed through to the shareholders based on each of their pro rata shares.

Again, even though an S corporation normally doesn’t pay tax, it is still required to file a return.

What is adjusted gross income?

The IRS defines your adjusted gross income (AGI) as your gross income minus any applicable adjustments.

Your adjusted gross income will never be higher than your total gross income and can be lower.

Your accountant will use your adjusted gross income as the starting point for calculating your taxes for the year and helping to determine your eligibility for any tax credits and deductions to help lower your overall tax bill.

What are tax brackets?

There are several different tax brackets that you can fall under at income tax time.

Federal income tax rates are broken down into seven sections called tax brackets.

As your income increases, so does the tax rate that you will pay.

To figure out what your marginal tax rate is or what your highest federal tax bracket is, you may need to know the following:

4 Things You Need to Know About Private Equity Investors in Franchise Businesses

Posted on June 20, 2023February 17, 2025 by The Business Worldwide

1. Private equity buyers want proof of franchise model quality, specifically strong unit-level economics and positive franchisee validation

This means to get top dollar, it’s not enough to have a strong franchise value proposition for franchisees. You must track system metrics and show positive trends over time. Collect franchisee profit and loss statements from the beginning. Standardized point-of-sales systems can help collect unit-level performance information that buyers will want to see. Franchisee satisfaction surveys should be implemented. If franchisee feedback isn’t strong, move quickly to address issues and communication gaps.

2. There must be additional evidence of brand momentum through new unit openings, same-store sales growth, significant open whitespace and other growth opportunities yet available

The operating model must be replicable, and there must be proof.For example, can you demonstrate that you open 100% of the units you sell? Are franchisees ramping to profitability within 18 months or fewer? That is much more valuable and important than selling a bunch of multi-unit licenses that never open. Do franchisees experience a solid cash-on-cash return? Buyers especially get excited when they see existing franchisees returning to buy new expansion units.

Private equity sponsors want to see strong growth potential within their own planned hold period. But they also want a terrific growth story for the next sponsor as well to command a good exit price. Franchise businesses can trade between private equity (PE) sponsors multiple times. Technically, this is called a “secondary buyout” (whether it’s the second PE-to-PE transaction or the tenth). I prefer to think of it as the PE Profit Ladder. At each step, new sponsors need to see a compelling long-term growth story for the business to command premium enterprise value.

3. If No. 1 and No. 2 are missing or weak and if the evidence doesn’t match the hype, PE quickly moves on

While you may be selling franchise licenses, that in and of itself doesn’t make your business attractive. It validates that you’re good at selling franchises, not that PE will find your company attractive. You may have even received (or paid for) flattering press coverage. Are you starting to believe your own press? Buyers may be calling you with effusive, “We’d love to talk about your business,” messages. After basking in the warmth of some positive market attention and getting these phone calls, the transition to engaging seriously with a seasoned PE buyer who assesses your business with a swift, clinical eye can feel like suddenly walking into a freezer. Where did the love go?

4. This is where your franchisee-franchisor relationship karma will finally catch up to you

Your franchisees have tremendous power over your sale outcome. If that idea strikes fear into your heart, you know where your work begins. Call it “turnabout is fair play,” “revenge of the franchisees” or whatever you like.

If you’re a franchisor, your ability to sell your company to private equity at a high price with great terms depends on the quality of your relationship with your franchisees, strong return on investment for franchisees and the quality of operators you attract to your system.I’ve seen this collapse of the hype-machine dawn on sellers far too late. PE’s brutally cool, fact-based assessment and the importance PE attaches to franchisee satisfaction, profitability and positive references about their franchise experiences can be jarring to some sellers. If you’re used to acting independently as a founder, it can feel like turning in your high school math test and getting it back with a bunch of red pen mark-ups. Whatever attention you are, or are not, currently investing to ensure strong franchisee profitability, the market will one day hold you accountable.

Are Your Company’s Leaders Feeling Outshined By Their Creative Stars? Here’s Why — and What You Need to Do About It.

Posted on June 20, 2023February 17, 2025 by The Business Worldwide

The demand for creative talent is perhaps stronger than ever. The World Economic Forum recently cited creative thinking as the second most important employee skill in 2023.

Likewise, a survey of business leaders conducted by Pew Research Center identified creativity as among the most frequently mentioned skills employees need to be successful.

Given such realities, many of today’s workers face unique pressures to standout from their peers and establish a name for themselves as the “creative” in their organization.

But such pressures are not unique to lower-level employees. Being seen as creative is also becoming increasingly associated with effective leadership. One IBM survey, which focused on 1,500 CEOs across 60 countries and 33 different industries, found that “creativity is now the most important leadership quality for success in business, outweighing even integrity and global thinking.”

In many ways, this makes intuitive sense. As business has become increasingly global and dynamic, members at all levels of the organizational hierarchy are expected to develop cutting-edge approaches to improving processes, procedures and practices they encounter in their role.

5 Signs You’re Hiring Wrong (and How To Fix Them)

Posted on June 20, 2023February 17, 2025 by The Business Worldwide

As entrepreneurs, we hate seeing lost opportunities, especially when they are pitfalls we could have avoided. Hiring pitfalls are some of the most common mistakes we make.

As an entrepreneur for 15+ years, I’ve made my fair share of mistakes in the hiring process and lived through those pitfalls just as much as the next. I have seen businesses clean up those common mistakes and radically transform their business by having more and better-qualified candidates.

There is a common trend to identify you have hiring problems. Chances are some or all of these signs resonate with you:

Not getting qualified candidates
Lack of response from candidates
Taking way too much time to hire
New hires leaving faster than coming in
Compensation feels more like a guessing game

Hiring the right people is one of the most important things a small business can do to succeed. But with so many great job opportunities out there, it can be tough to stand out from the competition and retain the best. That’s why optimizing your hiring process is important to attract and retain the best possible candidates.

UK’s Digital Divide: A tremendous rise in energy bill

Posted on April 24, 2023February 17, 2025 by The Business Worldwide

Across the world, energy systems are going digital. Electricity bills are more and more likely to pop up as an alert on your phone rather than popping through your letterbox. And many people now monitor their energy usage at home through smart meters that predict charges in real time.
In the UK, nearly all energy companies now rely on digital forms of communication to reach and engage with their users. And as the energy system transitions towards greener and more flexible ways of serving its customers, we’re likely to see digitalisation accelerate.
Digital systems certainly have their benefits, including easier service monitoring for suppliers and more clarity around bill breakdowns for customers. Yet despite the UK being a global leader in digital technology, there’s still a significant “digital divide” between those who have full access to the digital world and those who remain excluded from it. This gap has only expanded during the pandemic.
There are hundreds of ways for people to become digitally excluded. Some might not have access to digital technologies, or be able to afford them. Others might own them, but not know how to use them – or how to learn. And some might not be inclined to use new technologies in the first place.

People’s living arrangements can also contribute to digital exclusion. Those stuck in temporary or precarious housing, including low-income families, refugees and migrants, may struggle – legally or financially – to add money-saving energy technologies to their homes.
Financial inequalities can also heighten this exclusion. Energy companies may block people with debts from accessing the digitally monitored, cheaper energy tariffs. And it can be very challenging for people without proficient levels of English to deal with digital services that are only offered in English.
Consequences
Overall, it’s the most vulnerable within society – refugees, older people, low-income families, disabled people and many others – who are disproportionately affected by digital exclusion.
The consequences of this can be severe. If you can’t search for better deals, understand what payments are being taken, access smart technologies like meters or learn about ways to increase energy efficiency, it becomes much harder to save money and could easily lead to a cycle of missed bills and defaulted payments. Research suggests digitally excluded customers pay an average of £348 more per year on their energy bills.
Many vulnerable groups rely on traditional forms of communication with their energy suppliers, like letters, phone calls or visits. When these are disrupted, for example through pandemics or extreme weather events, inability to pay or understand bills can lead to life-threatening situations, like illness due to cold homes.
Solutions
The good news is that there are ways to overcome the challenges of navigating these systems. For refugees, migrants, older people and those less familiar with the UK’s digital energy system, barriers can be overcome by turning to trusted connections such as friends, family or community organisations.
These connections provide people with advice and guidance about energy services, translate bills, help them explore how to use new technologies or act as the mediator between them and energy suppliers.
Energy companies appear increasingly aware of the challenges associated with digital exclusion for their customers. As already encouraged by UK energy regulator Ofgem, companies shouldn’t rely solely on digital forms of communication. Instead, they should explore and respond to how their consumers prefer to interact with them. This could take a variety of forms, like developing in-person group support sessions in areas where digital exclusion is high.
And the importance of community shouldn’t be overlooked. Local age and language support groups are vital to help people navigate a complex and often expensive energy system on their own terms.

Literacy at an early stage

Posted on April 14, 2023February 17, 2025 by The Business Worldwide

The pandemic’s disruptions have only exacerbated many social, economic, and cultural fault lines, and so, learning recovery programs must focus on quality and equity at both the individual and systems level.

As our education systems move from scrambling to adapt to school closures and distance learning towards something approaching normality, many are asking questions about how to recover what was lost. How have children been impacted by this unprecedented gap in their learning? Will there be long-term effects? Will they suffer socially and emotionally from the “COVID slide”? And what can be done to make up for lost ground? While these concerns are valid—and vast amounts of federal funding have been allocated to the effort—gaps in academic outcomes are nothing new for many of our children. Children of color, from underserved communities, and those who face learning challenges, have always been subject to a persistent gap in reading outcomes relative to white and more affluent peers, a systemic failure that contributes to our country’s dismal reading proficiency record: In 2019, only 40 percent of all American fourth-graders and eighth-graders were proficient in reading, but 45 percent of white students are proficient compared to just 18 percent of Black students and 23 percent of Hispanic students. And unless learning recovery programs focus on quality and equity at both the individual student and systems level, they run the risk of exacerbating these kinds of education opportunity gap, as well as adding to the disparity in access to quality schools and the resources that all children need to be successful. Obstacles to learning can be genetic or biological in origin—as with neurologically based learning disabilities like dyslexia, dysgraphia, and ADHD—but they can also be environmental. Children, particularly students of color, who attend poor-quality schools in low-income areas; students who are English learners; students who have experienced trauma; or students who live at the intersection of one or more of these categories can confront significant learning challenges that will limit their potential if not addressed. Opportunity gaps often lead to disparate outcomes, which are too often dismissed as failures of achievement. Education nonprofits can play a significant role in our nation’s efforts to meaningfully support underserved students, supporting teachers with reading instruction approaches proven to be more effective for most children in the classroom. Lee Pesky Learning Center (LPLC) in Boise, Idaho, offers an example of how a small nonprofit has been able to make a measurable and sustainable difference in reading outcomes, with an impact far beyond its footprint. For example, when schools moved to online teaching in 2020, it was clear that young learners who were already struggling would be the most negatively impacted. For underserved Latinx students, many of whom are English learners, learning to read was already a challenge, and this would only be exacerbated by remote instruction. So, in June 2020, we started our newest program, Pathways to Literacy, to address this critical need in our community, targeting first-grade students of the Latinx community at no cost to their families. To provide one-on-one tutoring in foundational reading skills to students, we recruited Spanish-speaking tutors who were able to communicate with students’ families to coordinate the program, and who—though they taught in English—could use Spanish as needed to support students’ vocabulary and comprehension development. We also provided families with early literacy materials in Spanish, giving families the opportunity to support their children’s literacy development in Spanish, as research shows that developing literacy in one’s native language makes literacy development in a second language (like English) an easier process. The Pathways program is based on the principles of a broader initiative spearheaded by LPLC in 2008 to provide training and coaching to early elementary teachers, the Idaho Early Literacy Program (IELP). For more than 10 years, we have worked with preschool through third grade teachers across the state to improve early reading instruction and students’ reading outcomes. When schools first closed in March 2020, the training team at LPLC quickly pivoted from our in-person coaching model to focus on supporting teachers who suddenly had to figure out how to teach online: Our training team created and shared countless online teaching materials and tips accompanied by short videos that modeled practices. The results of these two programs—one focusing on building teacher capacity to support all students, the other providing direct services to a targeted population—have been far-reaching. LPLC’s program evaluations for the Idaho Early Literacy Program consistently show that the school districts that participate in the project see greater gains from fall to spring in the percentage of students able to read at grade level: One district went from 46 percent of students meeting reading benchmarks as measured by the Idaho Reading Indicator in September to 79 percent in May (compared to the state average, which only increased from 52 percent to 69 percent during that same school year). Students in the Pathways to Literacy program also made impressive gains. Moreover, the program created a system through which we could better meet the needs of individual children. For example, one student in our 2020 program, “Maria,” was not making adequate progress, and the LPLC team was able to refer her to a clinical psychologist who was able to determine that she had an underlying information processing challenge that impacted her learning. With generous financial assistance, we were then able to provide even more intensive reading intervention to Maria at no cost to her family. It can be particularly difficult to discern when an English learner is also struggling with a potential learning disability, but relying on evidence-based instruction and assessment practices allowed us to serve students better. (The school system was unable to pick up on this student’s needs while they were operating remotely.) These programs have been successful for specific reasons: They complement each other to address the larger education ecosystem. The Pathways to Literacy program provides 1:1 student services, but in school districts where many students are struggling, the current need cannot be met through 1:1 or even small group tutoring programs. That’s where the Idaho Early Literacy Program comes in: Building teachers’ capacity to provide reading instruction that is consistent with the science of reading means that more students will benefit from high-quality, classroom instruction. If the majority of students are able to meet grade-level targets through high-quality classroom instruction, then more intensive programs, like Pathways to Literacy, can be reserved for students who need short-term, additional support.

They are grounded in the science of learning and development. All of the programs LPLC provides are grounded in research-based practices, translating “what works” into practical, easy-to-implement approaches that teachers can directly use in their classroom. Additionally, the center invests in research on its programs, conducting extensive formative (e.g. are programs being delivered as intended?) and summative (e.g. what are the effects on important teacher and student outcomes?) evaluations. We use our research data to engage in the virtuous cycle of continuous improvement. In this way, LPLC views itself not only as an institution of learning (one that is in the business of helping children learn), but also as a “learning institution,” because its staff and team members must be willing to adjust their views, approaches, and methodologies as they learn new facts and information. Through self-reflection and change, we find new ways to make things better. And we believe there is no more powerful model for children than to work with teachers, specialists, and other adults who see themselves as learners too.

They leverage partnerships with schools and other community organizations. As a private nonprofit, LPLC has always taken the time to build relationships with schools and state agencies and is eager to share its experience and expertise. As Richard Osguthorpe, the former dean of Boise State’s College of Education mentioned in an interview for our book, More to Life than More, “LPLC has created a great environment for improving education without trying to tear anybody else down.” The IELP embodies this “we’re all in this together” ethos and is founded on a broad-based, multi-level collaboration that includes Idaho’s State Department of Education, teachers, and administrators from seven school districts, hundreds of individual donors, and one of the largest private foundations in the country. Pathways to Literacy Program also relies for its success on partnerships—with the Wood River YMCA’s Summer Bridge camp and the Blaine County School District. Co-locating these programs with other offerings allowed us to remove transportation as a potential barrier to participation in our reading program. As a result, we were able to work with students while they were attending the Y program, and the school district provided us a quiet space in which we could focus on reading.

After a year and a half of the pandemic, the urgency of learning recovery efforts is felt throughout the broader educational community and is a matter of national concern. However, it is our belief that supplemental programs that do not rely on evidence-based practices, that do not involve buy-in from stakeholders or strategic partnerships, and that do not seek to address the opportunity gap, run the risk of creating inequitable learning recovery.

For example, technology-based efforts are arguably the easiest to scale, but asynchronous, online learning is often the least conducive delivery mode for students with learning challenges. Children who are already well-resourced and least in need of the additional services will be the most likely to take advantage of them. It is also important to underscore that supplemental programs are a temporary fix. They cannot meaningfully address long-standing opportunity gaps, which require systems change. Our IELP program reflects one aspect of systems change—building teacher capacity to better meet the needs of all students—but more will be needed, including diversifying the teaching force and resourcing schools more equitably.