For many Australian business owners, profitability is a top priority. Yet, not all profit figures tell the same story. Enter Income from Operations (IFO)—a financial metric that slices through the noise and shows how your core business activities are truly performing. With 2025 bringing fresh reporting standards and economic conditions, understanding IFO has never been more important.
What Is Income from Operations (IFO)?
Income from Operations, sometimes known as operating profit, measures the profit your business generates from its main activities—before interest and taxes, and before any gains or losses from investments, asset sales, or other non-core activities. In plain English: it’s your business’s earnings from what it actually does, not from side hustles or financial windfalls.
- IFO Formula: Revenue – Cost of Goods Sold (COGS) – Operating Expenses
- Excludes: Interest, tax, one-off gains or losses, and income from outside your main business activities
For example, if you run a Melbourne-based café, IFO measures your profit from food and drink sales after paying staff, rent, and utility bills—but before you factor in tax bills or any money you might have earned from selling an old espresso machine.
Why IFO Matters More Than Ever in 2025
This year, the Australian business landscape is seeing several shifts:
- Stricter financial reporting standards from the AASB (Australian Accounting Standards Board) are pushing SMEs to separate operating income from other revenue streams in their statements.
- Increased lender scrutiny: Banks and alternative lenders are looking closely at IFO to assess business loan applications, especially as economic growth moderates and risk appetites tighten.
- Investor focus: With the ASX seeing a wave of small-cap listings, investors are zeroing in on IFO to judge whether businesses are truly viable or just relying on one-off windfalls.
In short, IFO strips out the accounting ‘noise’ and provides a clearer signal about your business’s core earning power. For many, this is the number that determines access to finance, valuation multiples, and even the price you can command if you sell up.
How to Use IFO for Smarter Business Decisions
IFO isn’t just for accountants—it’s a practical tool for everyday business management. Here’s how you can leverage it:
- Benchmark against industry peers: Many sectors, from retail to manufacturing, now publish IFO-based benchmarks. Comparing your IFO margin (IFO as a percentage of revenue) can highlight if your cost structure is out of line.
- Spot operational issues early: A falling IFO, even as overall profit looks stable, can warn of rising staff costs, supplier price hikes, or inefficiencies creeping in.
- Plan for growth: Banks and investors increasingly prefer to see robust IFO trends before approving expansion finance. A healthy IFO demonstrates sustainable growth potential.
- Adapt to 2025 regulations: The updated AASB 2025 guidance requires clearer IFO disclosure in financial statements, so getting your reporting right now helps you stay compliant and transparent.
Consider this scenario: a Brisbane tech startup posted a modest net profit in 2024, but its IFO was negative due to high R&D and admin costs. The founders used this insight to streamline operations and negotiate better supplier deals—by Q2 2025, their IFO had turned positive, unlocking new investor funding at a higher valuation.
Real-World IFO Trends for Australian Businesses
Recent ABS data shows that, in 2025, the average IFO margin for Australian SMEs sits at around 13%, but this varies widely by sector. For example:
- Retailers: Facing rising wages and energy costs, the median IFO margin is down to 8%—highlighting the need for sharper cost controls.
- Professional services: Benefit from remote work efficiencies, with IFO margins steady at 18%.
- Construction: Ongoing supply chain issues have squeezed IFO margins to an average of 7%.
With these trends in mind, business owners can’t afford to ignore IFO. It’s the clearest window into whether your daily operations are creating real, repeatable value—or just treading water.
Conclusion: Make IFO Your Financial North Star
In a year of economic uncertainty and regulatory change, Income from Operations is the metric that cuts through the spin. By focusing on IFO, Australian business owners can benchmark performance, make smarter decisions, and build resilience—no matter what 2025 brings.
