Command Track: Contracts, Money, Hiring and Planning · Module 2 of 4 · about 15 min
Money: price, margin and cash
Markup and margin are not the same. Markup is profit divided by cost. Margin is profit divided by price. If a job costs $75 and you charge $100, the markup is 33 percent but the margin is 25 percent. Mixing them up is a common way to underprice work.
Profit is not cash. A company can be profitable on paper and still run out of money if customers pay in 60 or 90 days while payroll is due every two weeks. Track cash flow: when money actually comes in and goes out.
Runway is how long you can operate before the cash runs out: cash on hand divided by monthly burn, the net amount you spend each month. If you have $300,000 and burn $50,000 a month, you have six months to fix it.
Know your three statements. The income statement shows revenue, costs and profit over a period. The balance sheet shows what you own and owe at one point in time. The cash flow statement shows how cash moved. The SBA has free guides to managing small business finances.
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Module quiz
5 questions, 4 correct to pass. You'll see what you missed and why, and you can retake it.