Net Worth: How to Calculate and Track Your Business Finances

Published Monday 26 January 2026

Table of contents

• What is net worth?
• Why net worth is important for small businesses
• How to calculate net worth
• Net worth vs. equity
• Net worth vs. profit
• Tracking net worth over time
• Three tips to improve net worth
• Track your business net worth effectively
• FAQs on business net worth

Key takeaways

• Calculate your business net worth regularly using the simple formula of assets minus liabilities to monitor your company's financial health and make informed decisions about growth and risk management.
• Improve your net worth by increasing revenue-generating assets, reducing high-interest debt first, and maintaining strong financial management practices including budgeting and expense tracking.
• Avoid common calculation mistakes by using appropriate asset valuation methods, recording all liabilities including small amounts, and maintaining accurate financial records that comply with legal requirements.
• Track your net worth at least quarterly using automated accounting tools to identify trends, spot potential financial troubles early, and demonstrate stability to lenders and investors.

What is net worth?

Business net worth is the total value of your assets minus your liabilities. This calculation shows your company's financial health at any given moment.

Net worth = Assets – Liabilities

Positive net worth means your assets exceed your liabilities, signalling financial stability and growth potential.

Negative net worth indicates your liabilities exceed your assets, suggesting financial struggles and potential insolvency risk.

Why net worth is important for small businesses

Net worth tracking helps small businesses make smarter financial decisions. Here's why it matters:

• Financial stability: Surplus assets create a safety net during rough patches
• Growth opportunities: Higher net worth provides more resources for reinvestment
• Cash flow management: Regular tracking helps anticipate financial needs. Learn more about cash flow management.
• Early risk detection: Monitoring flags financial trouble before it becomes critical
• Investor confidence: Strong net worth reassures lenders and investors, as inaccurate valuation can have severe consequences, sometimes leading to multi-billion-dollar litigation in high-profile cases.

For example, a business with a high net worth can expand without taking on excessive debt. A declining net worth shows there are issues to fix. You may need to change your plans to protect your finances.

How to calculate net worth

Calculating business net worth requires subtracting your total liabilities from your total assets. This straightforward formula gives you an accurate snapshot of your company's financial position.

Net worth formula explained

To calculate net worth, use this simple formula:

Net worth = assets – liabilities

Assets include everything your business owns with financial value:

• Cash and liquid assets: Money in accounts and short-term investments
• Property and equipment: Real estate, machinery, furniture, and vehicles
• Inventory: Goods for sale and raw materials
• Accounts receivable: Outstanding customer payments

Learn more about assets.

Liabilities include all financial obligations and debts:

• Loans and financing: Business loans, mortgages, and borrowed funds
• Accounts payable: Unpaid supplier invoices
• Accrued expenses: Outstanding wages, taxes, and costs
• Lease obligations: Rental agreements for space and equipment

Learn more about liabilities.

Net worth example calculation for a business

Here's a basic example of a business's net worth calculation.

The business's assets are:

• Cash in the bank: $25,000
• Office equipment: $10,000
• Total assets: $35,000

The business's liabilities are:

• Business loan: $20,000
• Credit line balance: $5,000
• Total liabilities: $25,000

Now, applying the net worth formula:

• Net worth = assets – liabilities
• Net worth = $35,000 – $25,000
• Net worth = $10,000

Here the business has a positive net worth of $10,000, indicating financial stability.

Common calculation mistakes

Common calculation mistakes can skew your net worth results. Avoid these pitfalls:

• Asset valuation errors: Use appropriate methods for each asset type. The existence of a formal Valuation Practice Survey for professionals highlights the importance of using established methodologies to avoid errors.
• Missing liabilities: Record all debts, including interest and small amounts
• Outdated calculations: Recalculate regularly as net worth changes over time
• Poor record keeping: Maintain accurate, current financial data. According to New Zealand's Inland Revenue, business records must be kept for seven years, making accurate data not just a best practice but a legal requirement.

Using a net worth calculator and financial tools such as Xero accounting software helps you keep accurate records. These tools can automate your calculations to reduce errors and give you confidence in your numbers.

Net worth vs. equity

Net worth and equity represent the same calculation: assets minus liabilities.

Net worth typically describes the overall financial position of individuals or businesses. Equity represents an owner's stake in their company and appears primarily in finance and investment contexts.

• In businesses with multiple owners, equity reflects how ownership is divided among shareholders.
• Any difference in net worth and the amount of equity on the balance sheet comes from specific equity items, such as retained earnings and paid-in capital.
• Sole proprietors and partnerships often refer to equity as owner's equity, while corporations use shareholders’ equity. Both mean the same thing.

Learn more about equity.

Net worth vs. profit

Net worth and profit measure different aspects of business performance:

• Net worth: Shows overall financial position (assets minus liabilities) at a specific point in time
• Profit: Measures short-term performance by comparing revenue to expenses over a period

While net worth and profit serve different purposes, profit directly affects net worth because any undistributed profit increases the business's equity.

Learn more about profit and loss.

Tracking net worth over time

Net worth tracking requires regular updates because it shows financial health at a specific moment.

Update frequency: Recalculate using current balance sheet figures to track progress and identify trends. Regular reviews help you make informed business decisions.

Learn more about balance sheets.

Automated net worth tracking tools such as Xero accounting software simplify this process. They offer real-time updates, automated calculations that reduce errors, and clear reports to help you spot patterns in your finances over time.

Factors affecting net worth

A business's net worth fluctuates based on changes in:

• Profitability: Higher earnings increase retained earnings if not distributed, boosting net worth
• Asset value: Getting new assets raises net worth, while the depreciation on older assets lowers it
• Liability: Paying off loans decreases liabilities, improving net worth
• Operating expenses: Cutting costs increases profitability
• Business environment: Economic downturns and market shifts can impact overall business performance

Three tips to improve net worth

Improving your business net worth requires strategic financial management. These three approaches will strengthen your financial position:

1. Increase your assets

Increase your assets by growing their total value:

• Revenue-generating investments: Purchase machinery to boost capacity or real estate for rental income
• Income diversification: Expand into new products, services, or markets

Recent research published in the Review of Managerial Science found that low retained earnings relative to total assets are a strong predictor of business failure. Put simply, keeping profits in the business is a good sign for long-term success.

This is because retained earnings can:

• Self-fund growth projects without taking on debt
• Provide a financial buffer to protect against unexpected expenses

Learn more about increasing revenue.

2. Reduce your liabilities

Lowering liabilities is just as important as increasing assets when improving net worth. To do this:

• Prioritize high-interest debt: Repay loans with the highest interest first to reduce your overall repayment costs
• Renegotiate loan terms: Talk to lenders about lowering interest rates or extending repayment terms.

3. Manage your finances well

A high net worth is often the result of good financial management. Make decisions that maximise your profits and keep expenses under control.

• Follow a budget: A well-considered budget ensures resources are allocated to growth initiatives while preventing unnecessary spending and preserving cash reserves.
• Track your expenses closely: Monitoring where money goes helps reduce overspending and highlights potential cost savings.

Learn more about budgeting and forecasting.

Track your business net worth effectively

Understanding your business's net worth is the first step towards building a more financially resilient company. By regularly calculating and tracking this key metric, you can make smarter decisions, spot risks early, and plan for sustainable growth.

Xero eliminates manual errors and keeps your net worth calculations accurate. The platform helps by:

• Real-time data: Uses current asset and liability figures for precise calculations
• Detailed reporting: Provides comprehensive reports to support decision-making

Try Xero for free to streamline your business financial tracking and get real-time insights into your net worth.

FAQs on business net worth

Here are answers to some common questions about business net worth.

What exactly does business net worth mean?

Business net worth is the value of everything your business owns (assets) after subtracting all that it owes (liabilities). It's a snapshot of your company's financial health at a specific point in time.

How often should I calculate my business net worth?

Calculate your business net worth at least quarterly. Regular tracking helps you monitor financial trends, measure progress towards your goals, and make timely decisions.

Can a business have negative net worth and still operate?

Yes, your business can operate with a negative net worth, especially in the early stages or during a downturn. However, this is a sign of financial risk. Have a clear plan to increase assets or reduce liabilities so your position improves.

What's the difference between business net worth and personal net worth?

Business net worth is calculated using only your company's assets and liabilities. Personal net worth includes all your personal assets (like your home, car, and savings) and personal debts (like a mortgage or personal loans). Keep them separate for clear financial tracking.

Should I include personal guarantees in my business net worth calculation?

No, a personal guarantee on a business loan is a contingent liability for you personally, not the business itself. It doesn't affect the business's net worth calculation, but it does affect your personal net worth if the business can't repay the debt.