This information on start-up costs can be used to determine the amount of money needed for each year the business continues to operate. This should be done before talking with financial lending sources. People invest in a new business or product with the idea of making a profit. It is important to know how much profit will be earned for each product or enterprise over several years. Gross income from sales is the amount of money resulting from the sale of the product or products.
Net profit is the money left after all costs are deducted from gross sales and all taxes are paid.
Profits are not estimated from the sale of one unit but are estimated over a given time period, usually one year. The sale of a few units, when the average price per unit is below average cost of production, is not profitable. The level of production should be estimated where the volume generates sufficient gross income to cover fixed costs plus variable costs. Cash flow and average-costs analysis are two different types of analyses that provide different kinds of management information. This text was extracted from the publication, MF-2184.