Page 102 - Spring Into Markets

What are expenses?
This term refers to all the money a trader has to spend to have a stall and run a business. It is often referred to as operating costs. It incorporates lots of different costs including:
Some of these expenses are one off, yearly payments. If you are trying to keep track of your expenses for each calendar month, then divide a yearly payment by 12 to spread the expense cost over 12 months rather than one month.
If you are a sole trader you cannot deduct any wages you have paid yourself (a term called ‘drawings’) — only the wages of any staff you may have.
* Also if your equipment costs are above a certain value (e.g. £1,000), it will need to be treated as a capital expense and depreciated. For example, if you buy a new van you cannot charge the whole cost in expenses, but only its depreciation costs (depreciation is the amount or percentage by which something decreases in value over time – usually one year). For tax purposes, you will claim capital allowance and capital expenses against the cost of the van.
What is net profit?
This is what is left over once the expenses have been taken away from the gross profit.
• Rent/service charge • Wages
• Utilities/telephone • Equipment/props
• Maintenance • Advertising • Vehicle costs • Insurance
• Travel costs
• Accountancy/finance costs • Signage, tickets
• Depreciation *
Example
Back to my bar of chocolate from earlier...
Remember if I sell one bar of chocolate for £1 and I bought that bar of chocolate from a supplier for 40p, then my gross profit is 60p (£1 – 40p = 60p) or 45p if I pay VAT. If I pay a member of staff a 10p salary and it cost me 5p to make a sign that says ‘buy your chocolate bars here’, then my expenses are 15p.
Therefore my net profit is 45p (gross profit – expenses = net profit) or 30p if I pay VAT.
102 Simple Profit and Loss Guide 14