Teenbusiness.com > Entrepreneurs > Common Business Mistakes > Counting Sales As Profits

Common sense tells adult entrepreneurs that revenue (or sales), the money collected from customers, is generally made up of two components: profit and expenses. If the business is profitable, the profit is calculated by subtracting all their expenses from their revenues.

Some young entrepreneurs, however, spend or pocket all of the money they receive from their businesses, thinking that all of this money represents profit. They forget that to calculate true profit, they must subtract the money they borrowed from their parents, or their savings account to come up with the true amount of money they have made in their businesses.

One 13–year–old entrepreneur borrowed $200 from her parents to start a neighborhood T–shirt business. She made 50 T–shirts and charged $10 for each shirt. This young business owner collected $500 for her T–shirts over a period of two months from her customers. By the time her parents started asking for their $200 back, the girl had already spent $400 of the money she collected from her customers. Needless to say, the parents were able to collect only $100 of the $200 they were owed.

This young entrepreneur was not trying to cheat her parents. What happened was that each time she sold some T–shirts, she used the money to buy clothes, magazines, and candy. Before she realized how much she had spent in the two–month period, it was too late. She had spent all but $100 of the money she had collected.

Even if this young entrepreneur had used her own savings instead of borrowing $200 from her parents, she still should have replaced the money. In other words, the amount of money in her savings account should have been bigger by the time she finished her business.