“For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it?” — Luke 14:28
Lesson
What You Will Learn
- Explain the difference between profit and cash flow
- Build a simple budget and compare it to actual results
- Price a product to cover costs and earn a profit, and calculate break-even
- Describe general tax responsibilities of a small business owner
Lesson Notes
Profit Is Not the Same as Cash
A business can be profitable on paper and still run out of cash, for example when customers pay late or the owner buys a large supply order. A cash flow plan lists expected money in and money out for the coming weeks or months.
Example: Joy starts April with $746.70. She expects $600.00 in and $420.00 out. Ending cash: $746.70 + $600.00 − $420.00 = $926.70. (Joy is a composite example.)
Budget vs. Actual
A budget is your plan; actual is what happened. Joy's March: ingredients budget $160.00, actual $150.55 (under by $9.45); packaging budget $40.00, actual $32.75 (under by $7.25); booth fees budget $25.00, actual $25.00. Total budget $225.00, actual $208.30, under by $16.70. Comparing each month helps you plan better.
Pricing for Profit and Break-Even
Price must cover materials, your labor, overhead, and a profit. Joy's dozen cupcakes: ingredients and box $9.00 + labor 0.75 hour at the $16.00 per hour she chose to pay herself = $12.00 + overhead share $3.00 = full cost $24.00. She adds $4.00 profit: price $28.00.
Break-even is the number of sales needed to cover fixed costs. Each dozen earns $28.00 − $9.00 materials = $19.00 toward fixed costs. Joy's fixed monthly costs: booth fees $100.00 + phone share $35.00 + license and insurance set-aside $55.00 = $190.00. Break-even: $190.00 ÷ $19.00 = 10 dozen. To earn $380.00 above fixed costs: ($190.00 + $380.00) ÷ $19.00 = 30 dozen.
Taxes: The General Picture
- Business profit is generally taxable income, and self-employed people generally owe self-employment tax in addition to income tax.
- Self-employed people may need to make quarterly estimated tax payments during the year.
- Set aside part of every payment in a separate tax savings envelope or account so tax time is not a crisis.
- Keep every receipt and your cash book; they support the deductions you claim.
- Some products and services require sales tax, and local licenses may be needed. Rules differ by place.
Get help from a qualified tax professional or a VITA site (if you qualify). This course does not give tax advice.
Key Terms
| Item | Details |
|---|---|
| Cash flow | The timing of money coming in and going out |
| Budget vs. actual | Comparing the plan to what really happened |
| Break-even | Fixed costs ÷ (price − variable cost per unit) |
| Estimated tax payments | Tax paid during the year by self-employed people |
In-Class Activities
Break-Even Practice
Mara sells candles for $12.00 each. Materials cost $4.50 per candle. Her fixed monthly costs are $150.00.
- What does each candle contribute toward fixed costs?
- How many candles must she sell to break even?
- How many to earn $300.00 above fixed costs?
Budget vs. Actual
Complete the table. Supplies: budget $200.00, actual $236.40. Advertising: budget $50.00, actual $35.00. Fuel: budget $120.00, actual $131.25. Phone: budget $40.00, actual $40.00. For each line, write the difference and whether it is over or under. Then total both columns and find the overall difference.
Assignment: Price It and Plan It
Part 1. Tasha prints T-shirts. (Tasha is a composite example.) She sells each shirt for $18.00. A blank shirt and ink cost $7.00. Her fixed monthly costs are $220.00. Calculate her break-even and the number of shirts needed to earn $330.00 above fixed costs.
Part 2. For your own business idea:
- Price one product or service using materials + labor + overhead + profit.
- Estimate fixed monthly costs and calculate break-even.
- Write a one-month budget with at least five expense lines and a line for tax savings.
- List two questions you would ask a tax professional.
Graded with the Module Assignment Rubric.
Reflection Journal
Jesus said a wise builder sits down first and counts the cost. Where have you started something without counting the cost? How does careful planning express faith rather than fear?
Prayer focus: Ask God for wisdom to count the cost and faith to trust Him with what you cannot see.
Weekly Reading & Devotions
Counting the Cost
Jesus asked, which of you, intending to build a tower, sitteth not down first, and counteth the cost? Wise builders plan before they start. In business, that means pricing carefully, planning cash flow, and preparing for taxes.
Many new owners underprice. They count the cost of materials but forget their own time, their overhead, and a profit to grow. Joy first priced her cupcakes at $15.00 a dozen. When she counted every cost, she realized each dozen cost her $24.00 to make. (Joy is a composite example.) Raising her price to $28.00 felt scary, but her loyal customers stayed.
Break-even tells you how many sales you need to cover your fixed costs. Cash flow planning tells you whether money will be there when bills come due. Profit and cash are not the same. A business can be profitable and still run short if customers pay late.
Taxes are part of counting the cost. Self-employed people generally owe self-employment tax and may need to pay estimated taxes during the year. Set aside part of every payment, keep every receipt, and get help from a tax professional or VITA. Planning ahead turns tax time from a crisis into a routine.
Think About It
- Have you ever undercharged for your work? What happened? ______________________
- How will you set aside money for taxes? ______________________
- What is one cost you might forget to count? ______________________
Daily Devotions for Week 7
Count the Cost
For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it?— Luke 14:28 (KJV)
Planning is not a lack of faith. It is wisdom.
Reflect: What do you need to count the cost of?
Pray: Lord, give me wisdom to plan well.
Do: List every cost of one product or service.
Learn From the Ant
Go to the ant, thou sluggard; consider her ways, and be wise: Which having no guide, overseer, or ruler, Provideth her meat in the summer, and gathereth her food in the harvest.— Proverbs 6:6–8 (KJV)
The ant prepares in good seasons for lean ones. Setting aside money for taxes and slow months is ant-like wisdom.
Reflect: What season do you need to prepare for?
Pray: Lord, make me wise like the ant.
Do: Choose an envelope to use for tax savings.
Render to Caesar
Render therefore unto Caesar the things which are Caesar's; and unto God the things that are God's.— Matthew 22:21 (KJV)
Paying taxes honestly is part of faithful citizenship.
Reflect: How do you feel about paying taxes?
Pray: Lord, help me give to each what is due.
Do: Write two questions for a tax professional.
Servant to the Lender
The rich ruleth over the poor, and the borrower is servant to the lender.— Proverbs 22:7 (KJV)
Debt can limit our freedom. Careful cash flow planning helps a business avoid unnecessary borrowing.
Reflect: Where could planning help you avoid debt?
Pray: Lord, lead me toward freedom.
Do: Write a simple cash flow plan for next month.
All Your Need
But my God shall supply all your need according to his riches in glory by Christ Jesus.— Philippians 4:19 (KJV)
We plan carefully and trust God fully. He is the true Provider.
Reflect: What need are you trusting God with?
Pray: Lord, You are my Provider.
Do: Thank God for one way He has provided this week.
Module Quiz
- 1.
Fixed costs are $300.00, the price is $25.00, and the variable cost is $10.00 per unit. Break-even is:
- 2.
A business can be profitable but short on cash because:
- 3.
Self-employed people often need to:
- 4.
A good price only needs to cover the cost of materials.
- 5.
Name two places to get help with small-business taxes.