Revenues & Expenses
This is the biggest concept that you need to understand about your company. Revenues/income is the money you’ve made after a product/service is sold. If you’re an artist and you sell a painting for $1000 then your revenue/income is $1000.
Expenses include all the costs necessary to sell the product/service and to keep your business in operation. For example, the paint, canvas, and brushes to make the painting plus the 10% that you owe your agent for helping you find a buyer would all be considered expenses.
Your job is to make sure that your revenues are always more or equal to your expenses. If your revenues equal your expenses, meaning you’re making just enough money to cover all costs, then you’re breaking even. Breaking even is great if you’re running a non-profit/charitable organization. If you’re running a traditional company or you’re an artist then your goal is to make profits (revenues>expenses).
Profits are what keep you and your business afloat. This is why pricing your product appropriately is so important. You want to make sure that costs of getting the product into your customer’s hands are covered in the price that you set.
Example: It costs $2 to make your product, $.50 to package it, and $3 to ship it. Total costs to get your product into your customer’s hands is $5.50. In order to make a profit, you need to set your price at more than $5.50.
Keeping a budget spreadsheet for your business or even in life is always a good idea. It helps you keep a good grasp on how the cash is flowing through your business so that you can make smart career decisions.