Profit, Revenue and Cash Flow: The Three Numbers Every Small Business Owner Must Know
A business can show a profit and still run out of money. Learn the difference between revenue, profit, and cash flow, and how to calculate your break-even point.
Many small businesses do not fail because they are unprofitable. They fail because they run out of cash. Understanding three simple numbers can protect you.
Revenue
Revenue (or sales) is the total money coming in from customers before any costs are subtracted. If you sell 100 products at ₹500 each, your revenue is ₹50,000.
Profit
Profit is what is left after you subtract costs from revenue.
- Gross profit = revenue minus the direct cost of making or delivering what you sold.
- Net profit = revenue minus all costs, including rent, wages, marketing, interest, and tax.
If your revenue is ₹50,000 and costs are ₹42,000, your net profit is ₹8,000, which is a 16 percent margin (8,000 ÷ 50,000).
Cash flow
Cash flow is the actual movement of money into and out of your bank account over time. This is different from profit, because of timing.
Example: you sell goods worth ₹1,00,000 on 60-day credit. On paper you have made a sale and a profit. But you must pay your supplier and staff now, and the customer will pay only in two months. You are profitable but short of cash.
Break-even point
Your break-even point is the sales you need to cover all your costs. Below it you lose money, above it you make a profit.
List your fixed costs
Costs that stay the same each month, such as rent and salaries. Example: ₹30,000.
Find your price and variable cost per unit
Variable costs rise with each sale, such as ingredients and packaging. Example: selling price ₹200, variable cost ₹120.
Calculate the contribution per unit
Price minus variable cost = ₹80.
Divide fixed costs by contribution
₹30,000 ÷ ₹80 = 375 units.
Read the result
You need to sell 375 units a month to break even. Every unit after that adds ₹80 of profit.
Habits that protect your cash
- Invoice immediately and follow up on late payments.
- Ask for advance payments or deposits.
- Keep a cash buffer of at least one to three months of expenses.
- Negotiate longer payment terms with suppliers.
- Track cash weekly, not only at year end.
- Separate personal and business accounts.
Simple tools
A basic spreadsheet is enough to start: income, expenses, and a running balance. Later, accounting software can help with invoices and tax.
What most people miss
- Growth eats cash. Buying more stock and hiring staff before customers pay can drain money, even when sales are rising.
- Your own salary counts as a cost. If you do not pay yourself, your true profit may be lower than it looks.
- Know your margins by product. Some items sell well but earn little.
