Business Income - Basics for Business Owners

As a small business owner or start-up founder in the UK, understanding basic financial principles is essential for managing expenses, setting goals, and ensuring business growth.

Do You Need to Be an Accountant?

No, but understanding how money flows in and out of your business helps you make smarter decisions and achieve long-term success.

What Is Business Income?

Income in business isn’t just sales or profit—it has several layers:

1. Sales/Revenue (after VAT)
2. (-) Variable Costs (e.g. materials, direct labour)
3. Contribution Margin (profit per unit sold before fixed costs)
4. (-) Fixed Costs (e.g. rent, salaries)
5. Gross Profit
6. (-) Taxes
7. Net Profit

Key Financial Terms:

1. Sales/Revenue: Total value of goods or services sold.
2. Variable Costs: Costs directly tied to production or service delivery.
3. Contribution: Sales minus variable costs, showing profit per unit before fixed costs.
4. Fixed Costs: Constant expenses like rent or salaries.
5. Gross Profit: Contribution minus fixed costs—reaching this break-even point is a milestone.
6. Taxes: Sole traders pay income tax; limited companies pay corporation tax.
7. Net Profit: The remainder after all expenses, though some may need reinvestment.

Take Control of Your Finances

Mastering these basics empowers you to manage cash flow and make strategic decisions. Financial literacy starts with understanding these fundamentals—not a degree in accountancy.

For personalised coaching, Million Goals offers 1-to-1 and group sessions tailored for UK entrepreneurs and small business owners.

Written by:
Mrudula Muralidharan, Founder & Finance Coach, Million Goals