Question

You speak to a business owner that is taking in almost $2,000 in revenue each month. The owner still says that they’re having trouble keeping the doors open. How can that be possible? Use the terms revenue, expenses, and profit/loss in your answer.

Answer 1

A company with that amount of revenue still saying that they hardly keep the doors open is probably because the profit is maybe negative. Profit is calculated by subtracting the total cost, that is the summation of the fixed cost and the variable cost, from the revenue. Even if the revenue is high, if the cost is also high, the profit will remain low. 

Answer 2

It can be possible that the owner is having trouble keeping the doors open due to the following reasons.

• As given, the business is taking almost $2,000 in revenue, but it might be that the expenses each month are greater than this value.
• In case the expenses are more than this revenue of $2,000, the business will be in loss and not profit and it will be losing money every month.
• Due to this loss, the business owner won't be able to sustain this business and hence has trouble keeping the doors open.

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