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Investment
The purchase of non-current assets (e.g., machinery, property) or financial assets (e.g., stocks, bonds) with the expectation of generating future returns.
Amazon's investment in a wind farm could lower energy costs and attract eco-conscious customers, but operational delays might postpone profit increases.
Profit
The financial gain obtained when revenue exceeds expenses, can be classified as gross profit, operating profit, or net profit.
Amortization
Amortization refers to the process of writing off the cost of an intangible asset (e.g., patents, trademarks, goodwill) over its useful life. This expense is spread out evenly over the asset's estimated lifespan.
Always monitor cash flow alongside profit to ensure your business remains solvent.
| Business Stage | Investment (Owner’s Funds) | Profit | Cash Flow | Key Challenges |
|---|---|---|---|---|
| Start-up | High investment in assets, equipment, and setup costs. | No profit yet as revenue is low and expenses are high. | Negative cash flow – More money is going out than coming in. | Risk of running out of cash before becoming profitable. |
| Growing | Investment may still be high as the business expands. | Small profit begins as revenue increases and covers costs. | Cash flow may improve, but remains unstable due to reinvestment. | Managing working capital and ensuring steady cash inflows. |
| Established & Thriving | Investment is now minimal, as profits are reinvested. | High profits as revenue exceeds costs. | Positive cash flow – More cash coming in than going out. | Balancing growth, reinvestment, and maintaining financial stability. |
