Revenue Costs Profit and Cash Flow

GCSE Business · Finance

Revenue, Costs, Profit and Cash Flow

Understanding finance is essential — without money, no business survives. These four concepts form the foundation of business finance.

Revenue (also called turnover or sales revenue) is the total income a business earns from selling its products or services.

Formula: Revenue = Price per unit x Quantity sold

Costs are the expenses a business incurs in producing and selling its products.

Type	Definition	Examples
Fixed costs	Costs that stay the same regardless of output	Rent, insurance, salaries, loan repayments
Variable costs	Costs that change with the level of output	Raw materials, packaging, delivery costs, piece-rate wages
Total costs	Fixed costs + variable costs	All business expenses combined

Formula: Total costs = Fixed costs + Variable costs

Profit is what remains after all costs have been deducted from revenue.

Type	Formula	What It Shows
Gross profit	Revenue - Cost of sales (cost of goods sold)	Profit from trading before overheads are deducted
Net profit (operating profit)	Gross profit - Operating expenses (overheads)	The actual profit the business makes after all costs

Cost of sales = the direct cost of making or buying the products sold (raw materials, manufacturing)
Operating expenses = overheads like rent, wages, marketing, utilities, admin

A business can have high revenue but low profit if costs are too high
Profit is a better measure of business performance than revenue
Profit margin = (Net profit / Revenue) x 100 — shows what percentage of revenue is kept as profit

Increase revenue: raise prices (if demand is inelastic), sell more units, enter new markets, launch new products
Reduce costs: negotiate with suppliers, cut waste, automate, move to cheaper premises, reduce staffing

Cash flow is the movement of money in and out of a business over time. It is NOT the same as profit.

Net cash flow = Cash inflows - Cash outflows

A business can be profitable but still fail if it runs out of cash — it cannot pay bills, wages or suppliers
Cash flow problems are the number one cause of business failure, especially for small businesses
Timing matters: a business may make a sale in January but not receive payment until March

A cash flow forecast predicts future cash inflows and outflows, helping businesses plan ahead.

Month	Cash in	Cash out	Net cash flow	Opening balance	Closing balance
Jan	£10,000	£8,000	+£2,000	£5,000	£7,000
Feb	£8,000	£12,000	-£4,000	£7,000	£3,000
Mar	£15,000	£10,000	+£5,000	£3,000	£8,000

Closing balance = Opening balance + Net cash flow

Speed up inflows: offer discounts for early payment, reduce credit terms, chase debts
Slow down outflows: negotiate longer payment terms with suppliers, lease instead of buy
Reduce costs: cut unnecessary spending
Arrange an overdraft: short-term borrowing facility for temporary shortfalls
Destocking: sell excess stock to generate quick cash

Always show your working in calculation questions — you get method marks even if the final answer is wrong
Know the difference between profit and cash flow — many students confuse them
Be able to read and interpret a cash flow forecast — identify problem months
For evaluation: Is profit or cash flow more important? Both matter, but cash flow is more immediate — profitable businesses can still go bankrupt
Remember: Revenue is vanity, profit is sanity, cash is reality