Small Business Finance Essentials

If you remember one thing, make it this: profit is an opinion; cash flow is a fact. Profit is an accounting figure that can include sales you haven't been paid for yet. Cash flow is the actual money moving in and out — the money that pays staff, rent and loans this week.

A profitable business can still fail if it runs out of cash, which is why growing companies so often hit a wall: sales rise, but the cash is tied up in inventory and unpaid invoices. Watch the cash with the cash flow calculator.

These two get confused constantly, and the confusion leads to underpricing. Margin is profit as a percentage of the selling price; markup is profit as a percentage of cost. The same sale always shows a higher markup than margin — a 50% markup is only a 33% margin.

Know which one you're quoting, and price from margin so you don't accidentally leave money on the table. Check both with the profit margin calculator.

The break-even point is the sales volume at which revenue exactly covers all costs — below it you lose money, above it you profit. The formula is your fixed costs divided by the contribution margin (price minus variable cost) per unit.

Fixed costs of $5,000, a $50 price and $20 variable cost means a $30 margin, so you break even at about 167 units (~$8,350) a month. Knowing this before you set prices or launch a product is the difference between a plan and a guess. Read break-even analysis with examples and run yours in the break-even calculator.

Working capital — current assets minus current liabilities — is the cash your operation ties up just to keep running: inventory on the shelf, invoices waiting to be paid, bills coming due. The more a business grows, the more working capital it usually needs, which is exactly why fast growth can strain cash.

Keeping enough liquidity on hand to cover the gap is what keeps the doors open between a sale and getting paid. Size your needs with the working capital calculator.

Big purchases force a cash-vs-ownership decision. Buying builds an asset and can unlock a large upfront tax deduction (Section 179), but ties up cash. Leasing protects cash flow and dodges obsolescence, but costs more over the equipment's life and leaves you owning nothing.

The right call depends on whether the gear has a long useful life, how fast it dates, and whether cash or total cost is your tighter constraint. Compare in buy vs lease equipment and the equipment calculator.

Whether you're buying, selling or planning, it helps to know roughly what a business is worth. Small businesses are often valued as a multiple of earnings, or by discounting their expected future cash flows back to today's dollars — the discounted-cash-flow approach.

It's an estimate, not a fact, and the assumptions drive everything. Get a grounded starting figure with the business valuation calculator.