Profits and Costs of
an Entrepreneur
CHAPTER 6, LESSON 3
NAME DATE
Serena Benny Mathew 04/30/25
DIRECTIONS
Read the article below, then answer the following questions based on the information you just read and calculate
the missing numbers in the P&L report.
Being Your Own Boss An entrepreneur’s income looks much
When working in the business world, you different. It takes lots of work and planning
might hit a point where you can’t move any before you can even begin to think about
higher in your company. For some people, bringing home a regular paycheck. In fact,
this isn’t a big deal because they’ve found only 40% of start-ups are actually profitable,
a job they love and are paid enough to live and virtually no start-ups earn a profit in the
the life they want to live. But others feel first year.1
trapped, especially if they want to earn This shouldn’t discourage you from pursu-
more money. ing your dreams, but just know that starting a
One of the greatest perks of being an en- profitable business from scratch isn’t easy. The
trepreneur and owning your own business is goal of any entrepreneur is to make a profit.
that there’s no limit to what you might be able And you’ll begin to make a profit (and an in-
to accomplish with a successful business. You come) when the money you earn from your
make the decisions and control the direction goods and services exceeds the cost to manage
of your business. and/or manufacture those goods and services.
But when it comes to income and profits, Simply put, when your business is profit-
owning your own business looks a lot different able, you have more money coming in than
than working for someone else’s company. going out. The sooner you have a clear idea
When you’re an employee, you’re hired, go of the expenses for running a business, the
to an office, typically work fixed or scheduled sooner you can start making decisions to start
hours, and earn a predetermined wage or earning a profit.
salary. The stability in this position allows Business expenses fall into several differ-
you to make informed decisions about your ent categories: start-up costs, cost of goods
finances. sold, and operating costs.
1. Kolmar, C. 20+ Must-Know Startup Statistics [2023]: Average Time to Reach Profitability at a Startup. Zippia, 2023.
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Profits and Costs of an Entrepreneur
CHAPTER 6, LESSON 3
Start-Up Costs produce the good or service you’re hoping
Imagine you want to start a coffee shop. Well, to provide.
you don’t just walk into a building and start
making cappuccinos. You have lots of things MARKETING
to do and bills to pay before that day comes. While you can advertise your business at a
Start-up costs are simply costs you have to pay relatively low cost thanks to social media,
during the preliminary phase of creating the sometimes you need to hire someone to cre-
business. Though many start-up costs depend ate a logo or website, or use their expertise
on what kind of business you’re starting, here to get your name into the world.
are some common ones:
EMPLOYEES
RESEARCH EXPENSES You might be able to start your business
You might have an incredible idea, but the without having to hire a single employee,
first question to ask is: Does anyone need but sometimes you might need extra hands,
what I’m offering? Entrepreneurs often pay and extra hands mean extra costs.
to conduct market research to determine
the demand for their product. For example, Cost of Goods Sold
if you want to start a coffee shop, you’ll need The cost of goods sold refers to the cost of
to research locations where a shop might be materials and labor needed to make your
popular. The money you put toward this kind product. The goal is to make sure you aren’t
of research helps you know where and what overpaying these costs and can actually bring
to put your resources toward. in money with the sale of your goods and
services. Here’s a closer look at these costs:
FEES
Fees are attached to most things in life, MATERIALS
right? But with a new business, you usually In most cases, whatever product you’re sell-
will have to pay for things like licensing fees, ing requires the use of other materials. For a
insurance, or permits. These are unavoidable, coffee shop, you’ll need to purchase coffee
especially if you’re opening a brick-and- beans, cups, stir sticks, and creamer on an
mortar business. ongoing basis. If you have a T-shirt printing
company, you’ll need to purchase blank shirts,
TECHNOLOGY AND EQUIPMENT ink, and printing machinery.
This could be as simple as buying photo ed-
iting software, or maybe it’s more complex LABOR
like buying machinery. Either way, you prob- Labor costs refer to the expenses you need
ably will have to buy the tools necessary to to pay your workers, like wages, benefits,
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Profits and Costs of an Entrepreneur
CHAPTER 6, LESSON 3
taxes, and bonuses. Labor has to be carefully you’ll never actually earn an income from
thought through because employers must your business. To help with this, business
follow regulations to make sure employees owners use a tool to measure money com-
are being treated well. Before you hire an ing in and out. This tool is called a profit and
employee, make sure your company is in a loss report, or P&L. A P&L is used to give an
good place to pay them. accurate snapshot of the financial state of the
business. Sometimes these reports are gen-
Operating Costs erated yearly, quarterly, or even monthly and
Operating costs are the costs to run your show the current financial situation compared
business on a day-to-day basis. Often these to previous seasons.
are the little expenses that can add up if you’re A P&L typically shows the revenue the
not considering them. Remember, not all company brought in over a period of time.
businesses will need all these things, but Revenue is money earned through the sale
it shows why it’s important to have a clear of your goods or services. It’s important to
business plan to accurately estimate your note that revenue and income aren’t the same
costs. Here are some examples of recurring thing. Revenue is all the money earned before
operating costs: subtracting any costs. After revenue is calcu-
• Rent/lease lated, a P&L will list all the different costs of
• Continued advertising the business. Once the costs are deducted
• Repairs and maintenance from the revenue, you’ll be able to see your
• Delivery/freight expenses total profit. The profit is your net income after
• Utilities you’ve deducted all your costs.
• Telephone services Owning your own business takes a lot
• Insurance of work and a ton of responsibility. But re-
• Office supplies member, its success is only limited by your
• Technology subscriptions decisions. Through hard work, you can be-
come a successful entrepreneur. And since
The P&L understanding what you need to spend mon-
These costs can be very overwhelming, and ey on is critical to your success, a P&L helps
without a system in place, you might fear that you make well-informed decisions.
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Profits and Costs of an Entrepreneur
CHAPTER 6, LESSON 3
1. How does an entrepreneur earn an income?
An income is earnedearned through the sale of goods and services after the cost to run the
business
2. Hank is considering starting a used clothing store in his city. What are some of the start-
up costs he may have to pay for this specific business?
Hank will need to research where to rent/lease or buy the reail space. Hank needs to purchase
some used clothes and he also needs advertising for the business.
3. Lisa has owned her Greek restaurant for two years. What are some of the materials or
labor that she’s probably purchasing?
Lisa needs to buy furniture for restaurant and also she will need to purchase silverware plates,
cups, etc.
4. Matt owns his own photography company and takes pictures of large events like
weddings, conferences, and fairs. What are some of the specific operating costs he
probably has to pay?
Matt is going to pay to enter the events and other fees or products.
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Profit and Loss Report
This is a P&L for Candace’s salon. Fill in the missing cells and use the numbers
to calculate how much income she made for the month of March.
REVENUE MARCH
Sales $7,250
Less (Discounts and Allowances) –$400 Subtract the less
from the total
Net Sales $6850 sales to find the
net sales.
COST OF GOODS SOLD MARCH
Materials –$1,175
Labor (Assistant Hair Dresser) –$1,200 Add up the total
cost of goods.
Total Cost of Goods Sold -$2375
Gross Profit $4475 Subtract the
total cost of
goods sold from
OPERATING EXPENSES MARCH the net sales to
find the gross
Advertising –$200 profit.
Repairs and Maintenance –$163
Travel $0
Rent/Lease –$1,200
Delivery and Freight Expenses $0
Utilities and Telephone Expenses –$86
Insurance –$56
Mileage $0
Office Supplies –$45
Other Expenses –$30 Add up all
the operating
expenses.
Total Operating Expenses -$1780
Profit Before Taxes $2695 Subtract the
total operating
expenses from
TAX EXPENSES MARCH the gross profit.
Tax Expenses –$200 Subtract the
tax expenses
from the profit
NET PROFIT $2495 before taxes to
determine the
net profit.
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Profits and Costs of an Entrepreneur
CHAPTER 6, LESSON 3
5. What was the cost of Candace’s overall expenses?
$10805
6. What could Candace do to earn more net profit?
Spend less on advertising
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