01 Three words that run every business
Income (also called sales, revenue or turnover) is the money customers pay you for what you sell. Costs are everything you spend to make, buy, store, sell and deliver it. Profit is what is left: income minus costs.
A business is healthy only when profit stays positive month after month. High sales with higher costs is not a business; it is an expensive hobby.
Example (hypothetical numbers, not data): say you sell 1,000 packets of spice mix in a month at ₹50 each. Income = ₹50,000. Costs: raw material ₹20 per packet (₹20,000), packaging ₹5 per packet (₹5,000), stall rent ₹6,000, a helper ₹8,000, transport ₹3,000. Total costs = ₹42,000. Profit = ₹50,000 − ₹42,000 = ₹8,000.
02 Pay yourself first, in the sums
Many first-time founders count their own time as free. It is not. If you could earn a salary elsewhere, that salary is a real cost of running your business.
Also count the money you put in. If your savings could earn interest in a bank deposit, the business must earn more than that to be worth the risk.
Example (hypothetical numbers, not data): in the spice example the profit is ₹8,000. If you could earn ₹12,000 a month in a job, the business is ₹4,000 a month behind your other choice. It needs more sales, a better price or lower costs.
03 Where profit comes from
There are only four levers: sell more units, charge a better price, spend less per unit, or cut monthly overheads. Every business decision moves one of these.
Write the four numbers down every month: units sold, price per unit, cost per unit and monthly overheads. If you know these four, you know your business.
- Sell more units
- Charge a better price
- Spend less per unit
- Cut monthly overheads