Business Sales Vs Business ProfitIn common usage, the terms “business sales” and “business profit” are used by analogy. These are the differences. And you still have to know about it.

Financial terms for beginners

More freedom of choice, more creativity, more free time: The reasons for self-employment are different for everyone. However, what must be equally present in all companies, start-ups and other types of self-employment, is the basic knowledge of business administration and financial mathematics. Only then can the operating costs, business sales, and profits be calculated.

Basically, the formulas are quite simple. Unfortunately, even graduated students like to confuse the difference between revenue/earnings and profit. Among other things, this ensures that self-employed and start-ups get into a financial slump because they look at the wrong key figures.

The calculation of business sales and profits

Business Sales Vs Business ProfitIn business administration, there are numerous invoice lines and cost centers, which can be quite confusing in larger numbers. For the two most important calculations in a company – turnover, and profit – the knowledge from the school mathematics lessons are completely sufficient.

What are the business sales?

Turnover, also known as revenue, indicates how much a business has taken over a defined period of time. This is only about the money earned. The formula for this is:

Price of all products x sales volume = sales

Example: A company has developed an app with offered for a gross price of 10 €. After a year, 20,000 of them have been sold. This means that the turnover is:

10 € x 20,000 = 200,000 € turnover

What is the business profit?

Every company has costs. These include costs for research, implementation, and distribution. If one subtracts these costs from the turnover, one receives the profit. The formula is thus:

Sales – Cost = Profit

Example: For the year mentioned above, two developers (total labor costs: € 100,000) spent one year on the app mentioned above, plus expenses for the shared office and equipment (€ 10,000), training (€ 15,000) and marketing (€ 30,000), That means:

200.000 € – (100.000 € + 10.000 € + 15.000 € + 30.000 €) = 45.000 € profit

Different cost centers make the calculation complex

Being a solo self-employed and selling a single product made from a single material makes the calculation of business sales, costs, and profits extremely simple. However, as a business grows and involves multiple people, partner companies or machines in the implementation and distribution to the customer, it quickly becomes quite complex. Because this creates several cost centers so that a breakdown by areas of responsibility, function, structure or offsetting must be distinguished.

Therefore, it is very important to conduct proper accounting in a company – even it consists of only one person. Otherwise, individual cost centers remain undetected, which falsify the calculation of the profit.

What self-employed need to consider

It does not just mean to work for yourself constantly as a self-employed. Especially lone fighters and small businesses like StartUps, which at first often only consist of two or three founders, have to take care of everything. This includes the determination of sales and profits.

Many startups are coming in the IT and tech sector. On the one hand, because digitization is becoming increasingly important to our society, but also because the costs of digital products are usually manageable.

Thanks to technical progress, every household has a fast Internet connection. And there is at least one device (for example, a laptop or a tablet), with which you can act online – that lowers the startup costs. The less cost, the more profit.

Conclusion

How, when and where exactly which taxes have to be paid off? It is often difficult to understand for laymen and newly started entrepreneurs. That’s why anyone who wants to start a business or start a start-up should first get together with a tax consultant. This can also explain how to calculate the profit of the specific business. Because the calculation is – as this article shows – often quite simple in theory.

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