Net worth: how to calculate and grow your business value

Published Friday 23 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 net worth with Xero
• FAQs on business net worth

Key takeaways

• Calculate your business net worth regularly using the formula assets minus liabilities to monitor financial health and make informed decisions about growth opportunities and risk management.
• Track your net worth monthly or quarterly rather than as a one-time calculation, since this financial snapshot changes constantly and helps you spot trends early before issues become critical.
• Improve your net worth through three strategic approaches: increase revenue-generating assets like equipment or real estate, reduce high-interest debt first, and maintain strict budget discipline to control expenses.
• Avoid common calculation mistakes by using current asset valuations, recording all liabilities including small debts, and keeping personal and business finances completely separate in your calculations.

What is net worth?

Business net worth is the total value of your business's assets minus liabilities. According to the U.S. Securities and Exchange Commission, this figure is sometimes called capital or net worth and represents the money left after selling all assets and paying off all liabilities. This calculation shows your company's financial health at a specific point in time.

Net worth = assets – liabilities

Here's what your net worth tells you:

• Positive net worth: Your assets exceed liabilities, indicating financial stability and growth potential
• Negative net worth: Your liabilities exceed assets, so you need to take action to strengthen your financial position
• Higher net worth: Stronger financial position and better ability to weather challenges

Why net worth is important for small businesses

Positive net worth signals financial wellbeing and provides key business advantages:

• Financial stability: Surplus assets act as a safety net during challenging periods
• Growth opportunities: Higher net worth provides more resources to reinvest in your business
• Cash flow management: Regular tracking helps anticipate and plan for cash flow needs
• Early risk detection: Monitoring changes can flag financial trouble before it becomes critical
• Investor confidence: Substantial net worth reassures lenders and investors of your financial soundness

Learn more about cash flow management.

For example, if your net worth is high, you can expand without taking on excessive debt. If it starts to fall, you can review your strategy early and make changes before issues grow.

How to calculate net worth

Calculating business net worth requires subtracting what your business owes from what it owns. Accurate calculation is essential for tracking your company's financial health and making informed decisions.

Net worth formula explained

To calculate net worth, use this simple formula:

Net worth = assets – liabilities

Assets are everything your business owns with financial value:

• Cash and liquid assets: Money in business accounts or short-term investments
• Property and equipment: Real estate, machinery, office furniture, and vehicles
• Inventory: Goods held for sale or raw materials
• Accounts receivable: Payments owed by customers

Learn more about assets.

Liabilities are financial obligations or debts:

• Loans and financing: Business loans, mortgages, and other borrowed funds
• Accounts payable: Invoices from suppliers you haven't paid yet
• Accrued expenses: Wages, taxes, and other outstanding costs
• Lease obligations: Rental agreements for office space or 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 affect your net worth accuracy. Watch out for these pitfalls:

• Asset valuation errors: Use the correct valuation method for each asset type. Your accountant can help ensure accuracy
• Missing liabilities: Record all debts including interest, no matter how small
• Outdated calculations: Net worth is a snapshot in time. Recalculate regularly to maintain accuracy
• Poor record keeping: Incomplete or outdated data will skew your results

Using a net worth calculator and tools in Xero accounting software helps you keep accurate records and automate your calculations. This reduces errors and gives you more confidence in your numbers.

Net worth vs. equity

Net worth and equity refer to the same concept: the value remaining after subtracting liabilities from assets.

Learn more about equity.

While both calculate the same value, they serve different purposes:

• Net worth: General term used for individuals and businesses to measure financial health
• Equity: Finance term representing an owner's stake in their company
• Multiple owners: Equity shows how ownership is divided among shareholders
• Balance sheet differences: Variations come from specific equity items like retained earnings and paid-in capital
• Business structure: Sole proprietors use “owner's equity” while corporations use “shareholder's equity”

Net worth vs. profit

Net worth and profit measure different aspects of your business’s financial health.

• Net worth is calculated as assets minus liabilities. On the balance sheet, net worth is reflected in the equity section, showing the value remaining after all debts are paid, which helps assess financial health over time.
• Profit is used to gauge business success. It's the income left after deducting business expenses from revenue. A business reports it on the profit and loss statement to measure its short-term performance by showing whether revenue exceeded costs over a set 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

Tracking net worth over time requires regular recalculation since it only captures your financial health at a specific moment. This snapshot approach is why regulatory bodies, like the Internal Revenue Service (IRS), often require a balance sheet for the most recently completed tax year as part of financial reviews.

Update your net worth regularly using current asset and liability figures from your balance sheet. Regular tracking helps you:

• Monitor financial progress: See how your business health changes over time
• Spot trends: Identify patterns in your financial performance
• Make informed decisions: Use current data to guide business strategy

Learn more about balance sheets.

Automated net worth tracking tools in Xero accounting software simplify this process. You get real-time updates, automated calculations that reduce errors, and analytics to spot financial trends more easily.

Factors affecting net worth

Your 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
• Liabilities: Paying off loans decreases what you owe, which improves net worth
• Operating expenses: Cutting costs increases profitability
• Business environment: Economic downturns and market shifts can change overall business performance

Three tips to improve net worth

Improving your business net worth requires strategic financial planning. Here are three proven approaches to strengthen your financial position:

1. Increase your assets

Increase your assets by boosting the total value of what your business owns:

• Revenue-generating investments: New machinery improves capacity and lowers costs, while real estate generates rental income
• Income diversification: Expand into new products, services, or markets to create additional revenue sources
• Retain earnings: Keep profits in the business rather than distributing them

Recent research published in the Review of Managerial Science found that businesses with low retained earnings relative to total assets had higher failure rates. Retained earnings provide:

• Self-funded growth: Finance projects without taking on debt
• Financial buffer: Protection 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 a natural by-product of efficient financial management. So make decisions to maximize 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 net worth with Xero

Track your net worth with Xero to eliminate manual errors and missed transactions. Xero provides:

• Real-time accuracy: Uses your latest asset and liability data for precise calculations
• Detailed reporting: Clear insights to support informed decision-making
• Automated tracking: Reduces errors and saves time on manual calculations

Track your net worth with Xero's financial reports and get one month free to see how automated tracking improves your financial management.

FAQs on business net worth

Here are answers to common questions about calculating and managing your business net worth.

How often should I calculate my business net worth?

Calculate your business net worth monthly or quarterly to track financial progress and identify trends early.

What's the difference between negative net worth and business failure?

Negative net worth indicates liabilities exceed assets but doesn't guarantee failure. Many businesses recover through debt reduction, asset growth, or improved profitability.

Can I improve net worth quickly?

Net worth improvement typically takes time through consistent asset growth and debt reduction. Focus on sustainable strategies rather than quick fixes.

Should I include personal assets in business net worth calculations?

No, keep personal and business finances separate. Only include assets and liabilities directly owned by your business entity.

How does net worth affect my ability to get business loans?

Higher net worth demonstrates financial stability to lenders, improving your chances of loan approval and potentially securing better interest rates.