"I sold 2,000 cedis this month!" sounds great, but it does not tell you whether the business made money. Understanding the difference between sales, profit and cash is one of the most useful things a trader can learn. Support programmes, lenders and employers who hire people to run shops all expect you to talk about these clearly.
Three different numbers
- Sales (revenue) is all the money customers paid you.
- Profit is what is left after you subtract all your costs from sales. It can be small even when sales are big.
- Cash is the money you actually have right now, in your wallet, box or account.
These three are often different. You might have high sales but low profit because your costs are high. You might have good profit on paper but little cash, because customers still owe you or because you spent cash on new stock.
Margin: profit as a share of the price
Your margin shows how much of each sale you keep. If you sell something for 20 cedis and it cost you 15 cedis, your profit is 5 cedis. That is a quarter of the price, so your margin is 25 percent.
Products with a thin margin need many sales to earn well. Products with a wider margin can earn more from fewer sales. Knowing your margin helps you decide which products to push, and how much of a discount you can afford.
Cash flow: timing matters
Cash flow is the movement of money in and out over time. A business can run out of cash even when it is profitable, because money goes out before it comes in. Common causes are: