profit
Profit is what remains after every cost is paid, and it is the only number that tells you whether a business actually works.
In plain English
Profit is the survivor. Everything came in, everything went out, and profit is what stayed.
It comes in layers, and understanding the layers is what separates a business owner from someone who is simply busy.
Gross profit is what is left after the direct cost of what you sold. Buy at ₦700, sell at ₦1,000, and your gross profit is ₦300. It tells you whether the thing you sell is worth selling at all.
Net profit is what is left after everything else. Rent, salaries, fuel for the generator, transport, tax, the loan repayment. It tells you whether the business is worth running.
Businesses die in the gap between those two numbers. Strong gross profit and terrible net profit means the product is good and the business is not. That is a fixable problem and only if you are looking at it.
And profit is still not cash. A profitable business can fail because its customers have not paid yet. Which is why profit tells you whether the plan works, and cash flow tells you whether you live long enough to find out.
Your shop sells ₦5 million of goods in a month. The goods cost ₦3 million, so gross profit is ₦2 million. Rent, staff, fuel and transport take ₦1.7 million. Net profit is ₦300,000. You handled ₦5 million and kept ₦300,000.
Questions people ask
What is a good profit margin?
It varies enormously by industry. What matters is whether it is improving, and whether it survives after every cost including your own time is counted.
Can a business be profitable and still fail?
Yes, and it happens constantly. If customers pay late and bills arrive on time, a profitable business can run out of cash and close.
Should I pay myself from profit?
Pay yourself a salary as a cost, so you can see whether the business is genuinely profitable after paying you. A business that only works when you work free is not a business.
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