Period 1 – Year 10 Business Use the 5 slides below to complete your presentation on Costs and Revenues – You have until 9.50am to complete this – add extra slides under Gross/Net Profit if needed

Net profit (before tax) Net profit (before tax) is the profit the business makes after all the direct costs (cost of sales) and indirect costs (total expenses) have been paid. Net profit can be calculated using the following formula: gross profit - total expenses = net profit All the other operating costs of the business (fixed costs) Net profit is the real measure of a business’s performance.

Tax After tax has been paid, the business can decide what to do with the rest of its profit. Once a business has calculated its net profit, it must pay tax to the Inland Revenue. Companies will pay corporation tax. All other businesses (such as sole traders and partnerships) will pay income tax. If you were Fred Snapper, what do you think you would do with the profit left over after tax? Fred Snapper is a sole trader. What sort of tax will he pay?

Maximizing profits However, many businesses aim to make their profits as large as possible (maximize them) in order to receive a good income and have enough money to reinvest back into the business. Some businesses carry out the same activities year on year. There are two main ways in which this can be done: increasing revenue reducing operating costs. How exactly might businesses try to increase their revenue or reduce their operating costs?

Maximizing profits: increasing revenue One method of increasing revenue is to increase the price of a business’s goods or services. Other methods include: expanding the scale of the business increasing advertising reducing prices (in order to encourage a higher volume of sales). introducing a new product or service Which of these methods do you think would be the most effective way for a business to increase its revenue?

Maximizing profits: reducing operating costs One way to reduce operating costs is by minimizing usage, for example, reducing the cost of paying staff wages by making one or more employees redundant. Can you think of any other ways a business could reduce its operating costs? Operating costs can also be reduced by: negotiating with suppliers to get better deals (e.g. cheaper stock) sourcing new, cheaper suppliers using new or fewer materials in order to reduce wastage.