Meaning of "clearing" when talking about your business

January 21, 2025 6:30 PM

If someone is describing their business and lists some of their expenses (in this case, the cost of a collaborating MD and clinic software) and then says they are "still clearing" a certain amount of money, do they typically mean the amount they are making after accounting for both significant business expenses and their tax burden, or just after their business expenses? It’s not always clear to me whether the figure they mention is highly impressive or still impressive but less so once taxes are factored in. Curious what people think!
posted by cristalina to Writing & Language (8 answers total)

I'm not sure that everyone necessarily use the word in a consistent way, but in the absence of other information, I would assume that the amount a business 'clears' is the net profit after tax.
posted by a very present absence at 6:45 PM on January 21 [1 favorite]

For a small business owner in the US I would guess they are using it to mean post-expenses but pre-income-tax, but would I not be certain.
posted by hovey at 7:06 PM on January 21 [1 favorite]

This is a bit of a tricky question, frankly. IME, really small businesses (e.g., sole proprietors) think of what they "clear" as income minus expenses. Most are probably even structured so that any profits flow through to their personal income for taxation purposes, so the taxes on company income isn't all that obvious and really hard to estimate. At some size level, though, perhaps when the company is big enough to have a dedicated accounting person or staff, the tax burden gets figured as another category of expenses.
posted by DrGail at 7:39 PM on January 21 [3 favorites]

I agree with DrGail here, clearing is what the owner gets out of the business. So if the taxation is mostly happening within the business, then it's post tax, but if the net revenue is being taxed on the personal level, then it would be pre-tax. But more generally people sometimes say "clearing $X after taxes" because without the qualifier, "clearing" by itself is ambiguous.
posted by ssg at 8:07 PM on January 21 [1 favorite]

In a really small business, you can't even tell whether "I'm clearing such-an-amount" is before or after the founder(s) take a salary. If the labour of founders is a significant part of the overall labour, this can be a bigger distortion even than not accounting for taxes.
posted by quacks like a duck at 1:03 AM on January 22 [4 favorites]

I agree it is ambiguous and I would not know if taxes are included. If they listed a few expenses and not tax, I would tend to think that tax was not included in the figure, because tax presumably is a large expense so you would expect it to be mentioned, but I don't think that would be clear.
posted by Mid at 6:40 AM on January 22

I’m not a business person, but I wanted to mention that you should consider the person and their motivations. If they are a bullshitter trying to impress people, it choose a different meaning than if they’re an honest mentor trying to avoid misunderstanding. And of course it isn’t that simple either, because they may have an interest in misleading competitors and/or the tax authorities.
posted by Gilgamesh's Chauffeur at 8:42 AM on January 22 [1 favorite]

I think you are being told the amount EBIDTA: Earnings before interest, taxes, depreciation, and amortization, all issues that are hard to represent when figuring out profitability or real income.
Here's a good Motley Fool article about it. www.fool.com/terms/e/ebitda/
It's how most people discuss their earnings from a small business where they are just trying to indicate whether they are making money or not. Many inexperienced business owners will not have a good handle on how much they are actually profiting from their earnings. As others have said, knowing the person providing the information gives you more insight into whether they are bullshitting you or not.
posted by drossdragon at 12:24 PM on January 22 [1 favorite]