Is sales more important than profit

The important difference between sales and profits

In common parlance, the terms “sales” and “profit” are incorrectly used interchangeably. These are the differences. And you still have to know that about it.

Financial terms for beginners

More freedom of choice, more creativity, more free time: The motives for self-employment are different for everyone. However, what all companies, start-ups and other types of self-employment need to have is basic knowledge of business administration and financial mathematics. This is the only way to calculate the operating costs, sales and profits.

Basically, the formulas for this are very simple. But unfortunately, even people with a university degree tend to confuse the difference between sales / revenue and profit. Among other things, this ensures that self-employed people and start-ups get into a financial slump because they are looking at the wrong key figures.

Calculating sales and profit

In business there are numerous invoice items and cost centers, which in large numbers can be quite confusing. For the two most important calculations in a company - turnover and profit - the knowledge from mathematics lessons in school is completely sufficient.

What is sales?

Revenue, also known as revenue, shows how much a company has earned in a defined period of time. This is only about the money made. The formula for this is:

Price of all products x sales volume = sales

Example: A company has developed an app. This is offered at 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's the win?

Every company has costs. These are, for example, costs for research, implementation and sales. If you subtract these costs from sales, you get the profit. The formula is thus:

Sales - costs = profit

Example: Two developers programmed the above app for a year (combined labor costs: € 100,000), plus expenses for the shared office and equipment (€ 10,000), advanced 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

If you are a solo self-employed person and sell a single product, which is made from a single material and sold at a fixed product price, the calculation of sales, costs and profit is extremely simple. But a company grows and if several people, partner companies or machines are involved in the implementation and sales to the customer, it quickly becomes quite complex. Because this creates several cost centers, so that a breakdown has to be made according to areas of responsibility, function, structure or billing.

It is therefore important that a company - even if it consists of only one person - has proper bookkeeping from day one. Otherwise individual cost centers remain undetected, which falsify the calculation of the profit.

What the self-employed have to consider

Becoming self-employed doesn't just mean working all the time. Lone fighters and small companies such as start-ups, which initially often only consist of two or three founders, have to take care of everything. This also includes the determination of sales and profit.

Many startups arise in the IT and tech area. On the one hand, because digitization is becoming more and more important for 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 start-up costs. The less costs, the more profit.

The profit and the tax levies

Regardless of whether self-employed / freelancer, start-up or large company: As soon as profits are made, taxes have to be paid on them. The taxes you have to pay depend on the legal form you have chosen for your self-employment. For example, GbR and small businesses pay income tax, traders pay trade tax, and corporation tax is due for GmbHs and UGs. And so on.

> Overview: Taxes for entrepreneurs and companies

> Founders should avoid these 5 tax mistakes

> 10 legal tax tips for the self-employed

Image: Pixabay