Profitability

Making more than you spend over a period.

Example

$60k of revenue against $52k of costs in a month.

Important

Profit is not the same as cash in the bank, and it is not always the goal — a venture-backed company deliberately runs at a loss to grow. Choose deliberately, not by accident.

Related terms

• Cash flow — The actual movement of money in and out of your bank account, as distinct from revenue you have earned but not been paid.
• Default alive — The company reaches profitability on the money it already has, assuming current growth and spending. Default dead means it does not.
• EBITDA — Earnings before interest, tax, depreciation and amortisation — a rough proxy for operating profitability.
• Income statement (P&L) — A statement of revenue, costs and profit over a period. Revenue − COGS = gross profit; gross profit − OpEx = operating profit.

Lessons that explain it

• The words everyone assumes you know — Founder vs CEO, shareholder vs employee, customer vs user, revenue vs profit, valuation vs cash, equity vs salary. Twenty minutes here saves a lot of nodding along in meetings. (15 min)
• Revenue, costs and profit — The three numbers everything else is built on, and the difference between the money that comes in and the money you keep. (10 min)
• Profit is not cash — Profitable companies go bankrupt. This is the single most important idea in company finance and almost nobody explains it to founders. (12 min)

All 176 terms in the Founder glossary