Revenue vs Profit: The Difference That Saves (or Kills) Your Business

The Mistake That Kills Businesses

Picture this: Your POS shows ₦500,000 this month. You feel rich. You upgrade your phone, take your family out, buy new clothes.

Next month: You can't pay rent. Can't restock. Can't pay staff.

What happened? You spent your revenue like it was profit.

This single confusion has killed more Nigerian businesses than bad products, tough competition, or economic downturns combined.

The Simple Definitions

Revenue (Turnover)

Revenue is ALL the money entering your business.

• Every POS transaction
• Every bank transfer received
• Every cash payment from customers
• Everything that came IN

Revenue tells you: "This is how much customers paid you."

Profit

Profit is what REMAINS after you remove ALL expenses from revenue.

• After rent
• After salaries
• After stock/inventory
• After utilities
• After transport
• After EVERYTHING

Profit tells you: "This is what you actually earned."

The Formula

Profit = Revenue - Total Expenses

That's it. Simple math. But the difference changes everything.

Real-World Examples

Example 1: Food Vendor

Monthly Expenses:

Profit = ₦320,000 - ₦280,000 = ₦40,000

The vendor's revenue is ₦320,000 but profit is only ₦40,000. That's a 12.5% profit margin.

If she spends ₦100,000 on personal expenses thinking she "made" ₦320,000, she's ₦60,000 in the hole.

Example 2: Fashion Reseller

Monthly Expenses:

Profit = ₦1,200,000 - ₦1,170,000 = ₦30,000

This business turns over a million naira but makes only ₦30,000 profit. That's a 2.5% profit margin.

Looking "big" but barely surviving.

Example 3: Freelance Designer

Monthly Expenses:

Profit = ₦400,000 - ₦100,000 = ₦300,000

This freelancer keeps 75% of revenue as profit. Much healthier business.

Why This Matters for Tax

Here's where it gets interesting for Nigerian businesses:

For Personal Income Tax

If you're self-employed, you're taxed on profit, not revenue. You can deduct legitimate business expenses before calculating tax.

Revenue: ₦4,000,000/year

Expenses: ₦1,500,000/year

Taxable income: ₦2,500,000

If you don't track expenses properly, you'll pay tax on the full ₦4,000,000. That's overpaying by potentially hundreds of thousands of naira.

For VAT

VAT is charged on revenue (sales), but you can claim back VAT on expenses (input VAT). Understanding this difference helps you calculate your actual VAT liability.

For Corporate Income Tax

Companies pay CIT on profit, not revenue. Small companies (under ₦50M turnover) pay 0% CIT regardless of profit.

The Separation System

Here's how to keep revenue and profit separate:

Step 1: Track Everything

Record every transaction—income AND expenses. Miss nothing.

Step 2: Categorize Properly

Know what's a business expense vs personal expense. Only business expenses reduce profit.

Step 3: Calculate Weekly/Monthly

Don't wait until year-end. Know your profit position regularly.

Step 4: Pay Yourself a Salary

Instead of taking random amounts from the business:

1. Decide on a monthly salary for yourself

2. This becomes an "expense" in the business

3. Only take that amount

4. Profit stays in the business for growth

Common Mistakes

Mistake 1: "I'll track it later"

Later never comes. Expenses pile up unrecorded. You don't know your true profit.

Mistake 2: "Small expenses don't matter"

₦500 here, ₦1,000 there. Over a month? ₦50,000. Over a year? ₦600,000. Every expense matters.

Mistake 3: "The business is paying for this"

Your car fuel for family trips is NOT a business expense. Mixing these destroys your profit picture.

Mistake 4: "I'll calculate profit at year-end"

By then, you've already spent money you didn't have. Calculate monthly at minimum.

Quick Profit Health Check

Answer these questions:

1. Do you know your revenue from last month? (Y/N)

2. Do you know your total expenses from last month? (Y/N)

3. Do you know your profit from last month? (Y/N)

4. Is your profit positive? (Y/N)

5. Is your profit margin above 10%? (Y/N)

If you answered "No" to any of questions 1-3, you're flying blind.

If you answered "No" to question 4, you're losing money.

If you answered "No" to question 5, your margins need attention.

How TaxHQ Helps

Our Accounting Dashboard automatically calculates:

• **Total Revenue**: Sum of all income transactions
• **Total Expenses**: Sum of all expense transactions
• **Net Profit**: Revenue minus expenses
• **Profit Margin**: Profit as percentage of revenue

No manual spreadsheets. No forgetting to record. Just accurate numbers.

The Bottom Line

> Revenue is vanity. Profit is sanity. Cash is reality.

Know the difference. Track both. Spend only from profit.

Your business depends on it.

---

*Start tracking properly today. Open your free accounting dashboard.*