Essential Business Calculations
Understanding how businesses track their money starts with three fundamental calculations. Total revenue equals price multiplied by quantity sold - basically how much money flows in from sales.
Total costs combine your fixed costs (like rent that stays the same) with variable costs (like materials that change with production). The magic happens when you subtract total costs from total revenue to get your profit.
Break-even analysis tells you exactly how many units you need to sell to cover all costs. Simply divide fixed costs by the difference between selling price and variable cost per unit. Your margin of safety shows how much wiggle room you have above break-even - it's actual sales minus break-even sales.
💡 Quick Tip: Cash flow tracking uses opening balance plus net cash flow (inflows minus outflows) to find your closing balance - essential for avoiding those awkward "we're out of money" moments!
