Updated: Sep 19
Profit and loss calculations are an important part of running a business. Profit is the amount of money a business has left over after all its costs have been paid. Loss, on the other hand, is how much money a business loses when its costs are higher than its income.
Learn more by watching the video and reading the blog post below:
The total amount of money a business makes from selling its goods or services is its total revenue. To figure out how much money was made, multiply the price of the product or service by the number of times it was sold. For example, if a business sells 100 units of a product for £10 each, the total income would be £1,000 (100 x £10).
All of the costs of making and selling goods or services are included in the total costs of a business. There are two kinds of costs: those that stay the same and those that change.
Fixed costs are costs that don't change no matter how many products or services are made. Rent, salaries, and insurance are all examples of fixed costs.
Costs that change with the amount of goods or services made are called variable costs. Raw materials, labour costs, and shipping costs are all examples of variable costs.
To figure out the total cost, you need to add up all the fixed costs and the costs that change over time. For example, if a business has to pay £5,000 in fixed costs and £2,000 in variable costs to make and sell 100 units of a product, the total cost would be £7,000 (£5,000 + £2,000).
Win or Lose?
Once you know how much money the business made and how much it cost, you can figure out if it made a profit or a loss. When a business makes a profit, the total income is more than the total costs. When a business makes a loss, the total costs are more than the total income.
To figure out if you made a profit or a loss, you have to take the total income and subtract the total costs. For example, if a business makes a total of £1,000 and spends a total of £700, then the profit is £300 (£1,000 minus £700). On the other hand, if the business makes a total of £1,000 but spends a total of £1,200, the loss is £200 (£1,000 - £1,200).
Every business needs to know how to figure out its profit and loss. Business owners can figure out if they are making a profit or a loss by using the formula: total revenue minus total costs = profit or loss. To make sure the business is profitable, it is important to keep track of all expenses and income. By knowing the basics of how to calculate profit and loss, business owners can make smart decisions and take the right steps to improve their business's financial health.