Gross Profit for Start-Ups

🧭 1. No Revenue = No Cost of Sales (Yet) 
In traditional accounting logic: 

• Cost of Sales (COS) is only recognised when revenue is earned. 
• If you haven’t sold anything yet, you technically don’t have COS—just operating or start-up expenses. 

But in management accounting, especially for investor packs or internal forecasting, you can still model COS to: 

• Show unit economics 
• Forecast margins 
• Align future spend with delivery capacity 

💡 So while COS may not appear in your statutory P&L, it’s still useful to define it in your internal models. 

🧾 2. Pre-Revenue Costs = Operating or Start-Up Expenses 

These include: 

• Product development (e.g. building Sherloc’s platform) 
• Founders’ salaries (unless directly tied to future deliverables) 
• Marketing and brand setup 
• Legal, accounting, and incorporation fees 
• Hiring and training before service delivery begins 

These are typically classified as Operating Expenses or Start-Up Costs, not COS. 

🧠 3. Strategic Treatment in Management Accounts 

You can still: 

• Tag future COS items (e.g. subcontractor rates, delivery costs) in your forecast 
• Use tracking categories in Xero to earmark costs that will shift to COS once revenue starts 
• Build a pro forma P&L showing expected COS vs OpEx split post-launch 

This helps investors see your scalability and margin potential, even before revenue lands.