Financial Literacy

"Orders aa rahe hain, par paise kahan hain?"

It's 11 PM and Ankita is staring at her laptop screen in her small rented room in Dehradun. She quit her IT job in Delhi eight months ago to start a D2C pahadi food brand — chutneys, pickles, roasted kumaoni dal, spice mixes. Her Instagram page has 14,000 followers. Orders are growing. Last month she did ₹2.8 lakh in revenue. On paper, things look great.

But her bank balance is ₹31,000.

She shipped ₹1.2 lakh worth of orders to two corporate gifting clients who'll pay in 30-45 days. She paid her suppliers — women in Almora and Bageshwar who source raw ingredients — ₹85,000 upfront because they need the money immediately. She pre-paid a packaging vendor ₹40,000 for the next batch. Instagram ads cost ₹15,000 this month. Rent, courier charges, FSSAI renewal, her own living expenses...

Revenue: ₹2.8 lakh. Profit on paper: maybe ₹45,000. Cash in hand: ₹31,000 — and ₹40,000 of bills due next week.

"Main profitable hoon ya nahi?" she texts her friend Priya at midnight.

Priya replies: "Profitable ho. Cash-flow positive nahi ho. Bahut fark hai."

This is the chapter where we take the simple Revenue-Cost-Profit idea from Chapter 1 and open it up completely. Because as Ankita just discovered, the word "profit" alone doesn't tell you enough. You need to understand how money moves through a business — where it comes from, where it gets stuck, what it really costs to serve each customer, and how to tell if your business is actually healthy.

Don't worry. We'll build it step by step, using real numbers from our characters. No MBA jargon without explanation. Every concept will earn its place by solving a real problem.

Fixed costs vs Variable costs

Let's start with a distinction that changes how you think about every rupee you spend.

Fixed costs are costs you pay regardless of whether you sell anything or not. Even if you close shop for a month, these bills still come.

Variable costs change depending on how much you produce or sell. More sales = more variable cost. Zero sales = zero variable cost.

Ankita mapped her costs last month:

Fixed costs (don't change with orders):

• Room rent (used as office/packing space): ₹8,000
• FSSAI license (monthly portion): ₹500
• Internet + phone: ₹1,500
• Instagram page management tool: ₹800
• Her own basic salary to herself: ₹15,000

Total fixed: ₹25,800/month

Variable costs (change with every order):

• Raw ingredients (per jar): ₹35-60 depending on product
• Packaging (jar, label, box): ₹25 per unit
• Courier/shipping: ₹65 per order (average)
• Payment gateway fee: 2% of order value

If she sells 100 jars, her variable cost is roughly ₹12,500-15,000. If she sells 300 jars, it's ₹37,500-45,000.

Her fixed costs? ₹25,800 whether she sells 10 jars or 1,000.

Why does this matter?

Because fixed costs are your monthly burden — you need to cover them before you make a single rupee of real profit. And variable costs determine whether each sale is worth making — if the selling price doesn't cover the variable cost per unit, you're losing money on every sale, and more sales means more loss.

The trap of high fixed costs

Vikram's franchise outlet in Dehradun has a very different cost structure from Ankita:

Fixed costs:

• Rent: ₹45,000/month
• Staff (3 people): ₹48,000/month
• Electricity + AC: ₹12,000/month
• Franchise royalty (minimum monthly): ₹15,000
• Loan EMI (for setup cost): ₹28,000/month

Total fixed: ₹1,48,000/month

Before Vikram sells a single burger, he needs ₹1.48 lakh just to keep the doors open.

High fixed costs mean high risk. If sales drop — because of rain, road construction outside your shop, a slow month — those costs don't drop with them. This is why franchises and restaurants fail more often than people think.

Low fixed costs mean flexibility. Ankita can survive a bad month. Vikram can't.

The lesson: When starting a business, keep fixed costs as low as humanly possible. Every fixed rupee is a promise you're making to pay — whether customers show up or not.

COGS, Gross Profit, and Gross Margin

Now let's get precise about how money flows.

COGS stands for Cost of Goods Sold. It's the direct cost of making or buying the thing you sell. Not rent. Not your salary. Just the cost directly tied to the product.

For Ankita's jar of pahadi tomato chutney:

• Raw ingredients: ₹45
• Cooking/processing labor (helper): ₹10
• Packaging (jar + label + box): ₹25
• COGS per jar: ₹80

She sells the jar for ₹249.

Gross Profit = Revenue - COGS
Gross Profit per jar = ₹249 - ₹80 = ₹169

Gross Margin is this expressed as a percentage:

Gross Margin = (Gross Profit / Revenue) × 100
= (₹169 / ₹249) × 100
= 67.9%

That's a strong gross margin. It means out of every ₹100 she earns, about ₹68 is left after covering the direct cost of the product. The remaining ₹68 has to cover all her other expenses — rent, shipping, ads, her own salary — and then hopefully leave some profit.

Let's compare gross margins across our characters:

Notice the range. Bhandari uncle's margin is thin — 14.6%. That's normal for trading businesses. He makes up for it with volume. Neema's homestay has a fat 76% gross margin, but she can only sell a limited number of room-nights per month.

Gross margin tells you how much room you have. A 60%+ gross margin gives you breathing space for marketing, rent, mistakes. A 15% gross margin means everything has to run perfectly or you're losing money.

Rule of thumb:

• Product businesses: aim for 50-70% gross margin
• Service businesses: can go 60-80%+
• Trading businesses: typically 10-25%
• Food/restaurant: 55-70% on individual items

Break-even — the number that tells you when you stop losing money

Break-even is the point where your total revenue exactly equals your total costs. Below it, you're losing money. Above it, you're making profit.

We introduced this briefly in Chapter 1 with Pushpa didi's chai. Now let's do it properly — with full math.

Pushpa didi's break-even

Selling price per cup: ₹20 Variable cost per cup (COGS): ₹8 (milk, tea, sugar, gas per cup) Contribution per cup: ₹20 - ₹8 = ₹12

(We're calling it "contribution" now — the amount each cup contributes toward covering fixed costs and eventually generating profit. More on this term later.)

Monthly fixed costs:

• Rent: ₹6,000
• Helper salary: ₹5,000
• Miscellaneous (cleaning, utensils, small repairs): ₹2,000
• Total: ₹13,000

Break-even point (in cups):

Break-even = Fixed Costs / Contribution per unit
= ₹13,000 / ₹12
= 1,084 cups per month
= ~36 cups per day

Pushpa didi sells 80-100 cups a day. She crossed break-even on Day 11-14 of every month. Everything after that is profit.

Break-even point (in rupees):

Break-even revenue = Break-even units × Selling price
= 1,084 × ₹20
= ₹21,680 per month

So Pushpa didi needs ₹21,680 in monthly revenue to cover all costs. She typically does ₹48,000-60,000. Healthy.

Vikram's break-even — a more complex example

Vikram's franchise is bigger, so let's walk through it carefully.

Average order value: ₹320 Average COGS per order: ₹115 (food ingredients, packaging) Contribution per order: ₹320 - ₹115 = ₹205

Monthly fixed costs:

• Rent: ₹45,000
• Staff (3 people): ₹48,000
• Electricity + AC: ₹12,000
• Franchise royalty (minimum): ₹15,000
• Loan EMI: ₹28,000
• Maintenance/misc: ₹5,000
• Total: ₹1,53,000

Break-even point:

Break-even = ₹1,53,000 / ₹205 per order
= 746 orders per month
= ~25 orders per day

Break-even revenue:

746 × ₹320 = ₹2,38,720 per month

Vikram needs to do about ₹2.4 lakh revenue per month just to survive. That's 25 orders a day, every day, including slow Tuesdays and rainy weekday afternoons.

He's currently averaging 30-35 orders on good days and 15-18 on bad days. Some months he breaks even. Some months he doesn't. He hasn't turned a consistent profit yet after 8 months.

"Dukaan khuli toh lagta hai sab bikk raha hai," Vikram tells Bhandari uncle over the phone. "Par mahine ke end mein hisaab lagaata hoon toh pata chalta hai — bas nikla. Kabhi thoda plus, kabhi thoda minus."

Bhandari uncle, who's been there: "Beta, apna break-even number yaad rakho. Roz subah woh number dekho. Usse upar gaye toh din accha. Neeche rahe toh socho kya adjust karna hai."

Break-even is not a one-time calculation

Your costs change. Rent increases. Ingredients get expensive. You hire someone new. Every time a fixed cost or variable cost changes, your break-even shifts.

Good habit: Recalculate break-even every quarter. Write it on a piece of paper and stick it where you can see it.

Cash flow vs Profit — the difference that kills businesses

This is the concept Ankita was struggling with at the beginning of this chapter. Let's understand it clearly, because more businesses die from cash flow problems than from lack of profit.

Profit is an accounting concept. It means your revenues exceeded your costs over a period — say, a month.

Cash flow is what actually happened in your bank account. Did more cash come in than went out? Or did more cash leave than arrive?

These are NOT the same thing. Here's why:

Ankita's November:

Revenue earned: ₹2,80,000 (she shipped ₹2.8 lakh worth of products) Total costs: ₹2,35,000 Accounting profit: ₹45,000

But look at the cash movement:

Cash received in November: ₹1,45,000 (₹1.35 lakh is due in 30-45 days from corporate clients) Cash paid out in November: ₹2,10,000 (she paid suppliers upfront, pre-paid the packaging vendor)

Cash flow: ₹1,45,000 - ₹2,10,000 = negative ₹65,000

Profitable? Yes, on paper. Able to pay bills? Barely.

This happens because of timing gaps:

• She pays suppliers before she gets paid by customers
• Corporate clients take 30-45 days to pay
• She needs to buy raw materials for the next batch while still waiting for payment from the last batch

This is called a cash flow gap, and it's the silent killer of growing businesses. The faster you grow, the more cash gets trapped. Sounds crazy, right? Growth can actually make your cash problem worse.

Priya explained it to Ankita: "Socho tum next month 50% zyaada orders karo. Amazing, right? But tum suppliers ko 50% zyaada advance dogi. Packaging vendor ko 50% zyaada. Aur corporate clients ab ₹2 lakh ka payment hold karenge instead of ₹1.35 lakh. Revenue badha, par bank account aur khali hua."

Ankita: "Toh matlab growth se main aur gareeb ho rahi hoon?"

Priya: "Temporarily, cash ke mamle mein — haan. Isliye working capital samajhna zaroori hai."

Three common causes of cash flow problems

1. Customers pay late, suppliers want money early. This is Ankita's problem. She's essentially financing her customers' purchases with her own money.

2. Inventory piles up. Bhandari uncle sometimes has ₹18-20 lakh of stock sitting in his shop. That's cash converted into cement and pipes, waiting to become cash again. If it doesn't sell quickly, cash is stuck.

3. Lumpy expenses. Vikram's quarterly franchise fee of ₹45,000 hits all at once. If he hasn't saved for it, that one payment wrecks his month.

How to manage cash flow

• Invoice immediately. Don't wait. The clock on payment terms starts from the invoice date.
• Negotiate payment terms. Try to get even 15 days credit from suppliers. Every day matters.
• Take advances. For large orders, ask for 50% upfront. "Corporate gifting? 50% advance, rest on delivery."
• Track cash weekly. Not monthly. Know your bank balance every Monday.
• Keep a cash buffer. At least 2 months of fixed costs in the bank at all times.

Working capital — the money trapped in your business

Working capital is the money needed to fund day-to-day operations. It's the cash tied up between paying your suppliers and collecting from your customers.

Working Capital = Current Assets - Current Liabilities

In plain language:

Current Assets = Cash + money customers owe you (receivables) + inventory Current Liabilities = money you owe suppliers + short-term loans + bills due soon

Bhandari uncle's working capital snapshot:

Current Assets:

• Cash in hand: ₹80,000
• Money owed by contractors (receivables): ₹3,50,000
• Inventory (stock in shop): ₹16,00,000
• Total: ₹20,30,000

Current Liabilities:

• Due to distributors: ₹8,00,000
• Pending electricity + bills: ₹15,000
• Total: ₹8,15,000

Working Capital: ₹20,30,000 - ₹8,15,000 = ₹12,15,000

That ₹12.15 lakh is the money "trapped" in Bhandari uncle's business operations. It's not profit — it's the lubricant that keeps the engine running. If a contractor who owes ₹1 lakh doesn't pay for three months, that's ₹1 lakh of working capital stuck. If cement sits unsold for weeks, that's more cash stuck.

Working capital is why profitable businesses still need loans. Bhandari uncle might make ₹3-4 lakh profit a year, but he needs ₹12+ lakh just to keep the business running day to day. This gap is usually filled by:

• Personal savings
• Supplier credit (buying now, paying later)
• Working capital loans from banks (CC/OD facilities)
• Reinvesting profits back into the business

"22 saal mein sabse bada lesson yahi sikha," Bhandari uncle says. "Profit aur cash alag cheez hai. Profit diary mein dikhta hai. Cash jeb mein hona chahiye."

The P&L waterfall — your business's full report card

Now we get to the big picture. A Profit & Loss Statement (P&L) tells you the complete story of how money flowed through your business over a period. Think of it as a waterfall — revenue comes in at the top, and at each step, something gets subtracted.

Let's build Vikram's monthly P&L step by step.

Step 1: Revenue (Top Line)

This is all the money earned from sales. Vikram's franchise did 900 orders last month at an average of ₹320.

Revenue = 900 × ₹320 = ₹2,88,000

Step 2: COGS → Gross Profit

Subtract the direct cost of food, ingredients, and packaging.

COGS = 900 × ₹115 = ₹1,03,500

Gross Profit = Revenue - COGS
= ₹2,88,000 - ₹1,03,500
= ₹1,84,500

Gross Margin = 64%

Step 3: Operating Expenses → EBITDA

Now subtract the operating expenses — the costs of running the business that aren't directly tied to each order.

Rent:                          ₹45,000
Staff salaries:                ₹48,000
Electricity + AC:              ₹12,000
Marketing/local ads:            ₹5,000
Maintenance & misc:             ₹5,000
Franchise royalty:             ₹15,000
                              --------
Total Operating Expenses:    ₹1,30,000

EBITDA = Gross Profit - Operating Expenses
= ₹1,84,500 - ₹1,30,000
= ₹54,500

EBITDA Margin = ₹54,500 / ₹2,88,000 = 18.9%

EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortization. It's the profit from your core operations — before accounting for loans, taxes, and the wearing out of your equipment.

Step 4: Depreciation → EBIT

Vikram spent ₹18 lakh on setting up the outlet — kitchen equipment, furniture, interiors, signage. This stuff wears out over time. Accountants spread this cost over the useful life of the equipment. If the equipment lasts 5 years:

Monthly depreciation = ₹18,00,000 / (5 × 12) = ₹30,000

EBIT = EBITDA - Depreciation
= ₹54,500 - ₹30,000
= ₹24,500

EBIT = Earnings Before Interest and Tax. Also called operating profit.

Step 5: Interest → PBT

Vikram took a ₹10 lakh loan at 13% interest for the setup. Monthly interest portion of his EMI:

Monthly interest ≈ ₹8,500

PBT = EBIT - Interest
= ₹24,500 - ₹8,500
= ₹16,000

PBT = Profit Before Tax.

Step 6: Tax → PAT (Net Profit)

Vikram's business is a small proprietorship. After deductions, let's assume an effective tax rate of about 15% at this income level:

Tax = ₹16,000 × 15% = ₹2,400

PAT = PBT - Tax
= ₹16,000 - ₹2,400
= ₹13,600

Net Margin = ₹13,600 / ₹2,88,000 = 4.7%

PAT = Profit After Tax. Also called net profit or bottom line.

The full waterfall

Revenue                    ₹2,88,000   (100%)
  - COGS                  ₹1,03,500
  ─────────────────────────────────
Gross Profit               ₹1,84,500   (64.0%)
  - Operating Expenses     ₹1,30,000
  ─────────────────────────────────
EBITDA                       ₹54,500   (18.9%)
  - Depreciation             ₹30,000
  ─────────────────────────────────
EBIT                         ₹24,500    (8.5%)
  - Interest                  ₹8,500
  ─────────────────────────────────
PBT                          ₹16,000    (5.6%)
  - Tax                       ₹2,400
  ─────────────────────────────────
PAT (Net Profit)             ₹13,600    (4.7%)

₹2,88,000 came in. ₹13,600 is what Vikram actually gets to keep. That's the reality of a franchise outlet in its first year.

What each number means — and when to use which

With all these different profit numbers, it's easy to get confused. Here's a simple guide:

Pushpa didi doesn't need to think about EBITDA or depreciation — she has a small chai stall with minimal equipment. For her, the gap between gross profit and net profit is almost entirely fixed costs (rent, helper). Simple.

Vikram absolutely needs to track the full waterfall. He has a loan (interest), expensive equipment (depreciation), franchise royalty, and multiple staff. Missing any of these layers would give him a dangerously wrong picture of his profitability.

Use the level of detail that matches your business complexity. As your business grows, you'll need more layers.

EBITDA margin — the number investors and Shark Tank judges love

If you've watched Shark Tank India, you've heard this word a hundred times. "EBITDA margin kya hai?" Let's understand why.

EBITDA strips away things that vary between businesses for reasons that have nothing to do with operations:

• Interest depends on how much debt you have — a financing decision, not an operating one
• Tax depends on your structure, location, deductions — not your product
• Depreciation/Amortization depends on accounting choices

So EBITDA gives you the purest measure of how well the business itself is running.

What's a "good" EBITDA margin?

It depends on the industry:

On Shark Tank India, when a founder says "We're EBITDA positive at 18% margin," the sharks get interested. When they say "We're at -30% EBITDA, but we'll be positive in 18 months," the sharks get skeptical. The difference between the two: one business makes more than it spends on operations. The other doesn't — yet.

"EBITDA positive" — the milestone

For startups and new businesses, there's a moment when you cross from negative EBITDA (operations are costing more than they earn) to positive EBITDA (operations are generating surplus). This is a major milestone.

Why? Because it means your core business model works. You've figured out how to sell something for more than it costs to produce and run. Everything else — debt repayment, taxes, scaling — can be optimized later. But if the core operation doesn't generate surplus, no amount of funding or financial engineering can save you long-term.

Vikram's EBITDA is ₹54,500 on revenue of ₹2,88,000. He's EBITDA positive — barely, but positive. His core franchise operation generates surplus. The reason his net profit is thin (₹13,600) is because of the loan EMI and equipment depreciation — those are costs of getting started, and they'll reduce over time as the loan gets paid off.

If his EBITDA were negative — if he couldn't even cover rent and staff from his gross profit — that would be a serious problem. It would mean the franchise operation itself doesn't work at his location, and no amount of waiting will fix it.

Contribution Margin vs Gross Margin

These two terms sound similar but are subtly different, and the difference matters.

Gross Margin = (Revenue - COGS) / Revenue

COGS includes only the cost of the product itself — raw materials, direct labor, packaging.

Contribution Margin = (Revenue - ALL variable costs) / Revenue

Variable costs include COGS plus other costs that vary with each sale — shipping, payment processing fees, sales commissions, etc.

Ankita's jar of tomato chutney:

Selling price: ₹249

COGS: ₹80 (ingredients + labor + packaging) → Gross margin: (249 - 80) / 249 = 67.9%

Additional variable costs per order:

• Shipping: ₹65
• Payment gateway (2%): ₹5
• Packaging for courier: ₹10

Total variable costs: ₹80 + ₹65 + ₹5 + ₹10 = ₹160 → Contribution margin: (249 - 160) / 249 = 35.7%

See the difference? Gross margin says 67.9% — sounds great. Contribution margin says 35.7% — still decent, but a very different picture. The contribution margin is the real amount each sale contributes toward covering fixed costs.

When to use which:

• Gross margin — for comparing products, understanding product-level profitability, setting prices
• Contribution margin — for break-even calculations, understanding true per-sale economics, deciding if a sales channel is worth it

Ankita realized that her Shopify website orders (where shipping was cheaper at ₹45 because she could negotiate bulk courier rates) had a higher contribution margin than her Instagram DM orders (where she shipped individually at ₹75). Same product, same price, different profitability per order. This helped her decide to invest more in driving website traffic.

Unit Economics — the cost to serve one customer

Unit economics is about zooming in to one single transaction and asking: does this one sale make economic sense?

If your unit economics are broken — if you lose money on each sale — then growth doesn't help. You can't fix bad unit economics with volume. Selling more of a loss-making product just means losing more money faster.

Priya, who's building the agri-tech app, explained unit economics to the group: "Think of it like this. If it costs you ₹150 to acquire one customer (ads, discounts, free samples) and that customer gives you ₹89 of contribution margin on their first order, you're ₹61 in the hole. You need that customer to come back at least twice more just to break even on what you spent to get them."

Key unit economics metrics

Customer Acquisition Cost (CAC): How much you spend to get one new customer.

Ankita spends ₹15,000/month on Instagram ads. Last month those ads brought 40 new customers. CAC = ₹15,000 / 40 = ₹375 per customer.

Average Order Value (AOV): How much a customer spends per order.

Ankita's average order: ₹520 (customers usually buy 2-3 jars).

Contribution per order: Revenue minus all variable costs.

₹520 - ₹310 (variable costs for 2-3 jars) = ₹210

LTV (Lifetime Value): How much a customer spends over their entire relationship with you.

Ankita's data shows repeat customers order about 3 times over 6 months. LTV = 3 × ₹210 = ₹630

The golden ratio: Your LTV should be at least 3x your CAC.

Ankita: LTV ₹630 / CAC ₹375 = 1.68x

That's below 3x. She's spending too much to acquire customers relative to what they're worth. She needs to either:

• Reduce CAC (better targeting, organic content, word-of-mouth)
• Increase AOV (bundles, upsells)
• Increase repeat rate (email follow-ups, subscription model)

"Yeh numbers dekhe toh samajh aaya ki har customer pe Instagram ko paisa dena bhi ek cost hai — aur agar customer ek baar khareedke chale gaye toh main loss mein hoon," Ankita notes.

Unit economics for different businesses

Pushpa didi has the best unit economics of anyone — near-zero CAC because her customers are walk-ins at Triveni Ghat, and they come back every day. Simple, beautiful.

Neema has high contribution per booking but also high seasonality — tourist season is 6-7 months, rest is very lean.

Financial projections — building a basic model

A financial projection is your best estimate of what your business's finances will look like in the future — next month, next quarter, next year.

It's not about being perfectly accurate. It's about thinking through the numbers so you're not surprised, and so you can plan for different scenarios.

Rawat ji's juice business projection

Rawat ji wants to start a packaged apple juice brand from his Ranikhet orchard. He hasn't started yet, but he wants to understand if the numbers work before investing. Let's help him build a basic projection.

Assumptions (Year 1):

• Production capacity: 500 bottles per month (starting small)
• Ramp-up: 300 bottles/month for first 3 months, then 500/month
• Selling price: ₹80 per 200ml bottle
• COGS per bottle: ₹32 (apples, processing, bottle, label)
• Monthly fixed costs: ₹35,000 (rent for small processing unit, 1 helper, electricity, FSSAI)
• Setup cost: ₹3,50,000 (equipment, license, initial packaging order)
• Marketing budget: ₹8,000/month

Monthly projection (simplified):

Year 1 totals:

• Total revenue: ₹3,68,000
• Total costs: ₹6,54,400 (COGS + fixed + marketing)
• Year 1 loss: -₹2,86,400
• Add setup cost: Total investment needed: ~₹6,36,400

Rawat ji's break-even (monthly):

Fixed + Marketing = ₹43,000
Contribution per bottle = ₹80 - ₹32 = ₹48
Break-even = ₹43,000 / ₹48 = 896 bottles per month

He needs to sell about 900 bottles a month to break even. In Year 1, he maxes out at 500. So Year 1 will be a loss for sure. The question is: can he scale to 900+ in Year 2?

Year 2 projection (optimistic):

• If he reaches 1,000 bottles/month by Month 6 of Year 2
• Monthly profit at 1,000 bottles: ₹48,000 contribution - ₹43,000 fixed = ₹5,000/month
• At 1,200 bottles: ₹57,600 - ₹45,000 (slightly higher costs) = ₹12,600/month

The numbers show Rawat ji needs:

1. About ₹6.5 lakh to survive Year 1
2. A distribution plan to reach 900+ bottles by Year 2
3. Patience — this business will not make money immediately

"Yeh dekho Rawat ji," Priya shows him the spreadsheet. "Agar numbers pehle se samajh lo, toh galat expectations nahi hoti. Bahut log sochte hain ki shuru karte hi paisa aayega. Real mein 12-18 months lagta hai."

Rawat ji nods. "Yeh toh seb ke pedh jaisa hai. Pehle 4-5 saal sirf paani dete ho. Phal baad mein aata hai."

How to build your own projection

1. Start with revenue. How many units can you realistically sell per month? Be conservative, not optimistic.
2. Calculate COGS per unit. Know exactly what each product costs you to make.
3. List all fixed costs. Rent, salaries, insurance, licenses, loan EMIs — everything that doesn't change with sales.
4. Add variable costs. Shipping, commissions, packaging — everything that scales with sales.
5. Build month by month. Revenue likely starts low and builds. Costs often start high (setup) and then stabilize.
6. Calculate break-even. When does monthly revenue cover monthly costs?
7. Plan for three scenarios: Optimistic, Realistic, Pessimistic. If the pessimistic scenario means you lose your house, maybe reconsider.

The most important projection rule: Be honest. The projection is for you, not for impressing someone. If you lie to the spreadsheet, the spreadsheet lies back — and reality doesn't care about either.

Putting it all together

It's a Sunday, and our characters are on a WhatsApp group that Priya created. The topic: "What financial number matters most to your business right now?"

Pushpa didi: "Break-even. Roz ka break-even. 36 cups ke baad sab profit hai. Yeh number mere dimag mein hai."

Bhandari uncle: "Working capital aur cash flow. Mera profit theek hai, par cash hamesha cycle mein phansa rehta hai. 22 saal se yahi game hai."

Ankita: "Contribution margin. Mujhe laga tha 67% gross margin hai toh sab accha hai. Par shipping aur payment fees daalke dekha toh 35% bacha. Ab samajh aaya kahan paisa ja raha hai."

Vikram: "EBITDA. Abhi ₹54,500 hai. Jab yeh ₹80,000 cross karega tab chain ki neend aayegi. Iska matlab loan EMI cover hone ke baad bhi kuch bachega."

Neema: "Seasonality ka cash flow. Hum 6 mahine mein 10 mahine ka paisa kamaate hain. Off-season mein kharcha wahi rehta hai. Budget uske hisaab se banana padta hai."

Rawat ji: "Abhi toh bas projection dekh raha hoon. Break-even 900 bottles hai. Pehle wahan pahunchna hai, phir baaki sab."

Priya: "Unit economics. Agar ek customer serve karna profitable nahi hai, toh 10,000 customers serve karna 10,000 baar loss hai. Pehle unit theek karo, phir scale karo."

Each of them is right — for their stage of business. And that's the beauty of financial literacy: it gives you the language and the tools to understand your specific situation, not someone else's.

In the next chapter, the government enters the picture. Vikram gets a notice about GST filing. Pushpa didi's nephew asks her, "Didi, do you know about the composition scheme? You could be paying much less tax." Ankita discovers that her interstate shipments have a completely different GST treatment than local ones. And Bhandari uncle — well, Bhandari uncle has been dealing with the tax department for 22 years, so he'll be the one giving the lessons.

It's time to talk about taxation — and how to stop being afraid of it.