Sales and Revenue are terms that often get mixed up, but they have very distinct meanings.
Understanding the difference between them is key to understanding financial health.
An easy way to think about it is breaking it down into three steps: Sale, Revenue, and Payment.
The Sale – Think of this as the high five for “closing a sale”. This is essentially an agreement to purchase goods/services. But the transaction may not complete when the deal is done – like if you sell a car but it won’t be delivered until next month. Or, if you sell a marketing campaign that will happen over the next six months.
Revenue – This is when the value of the goods or service is delivered to the customer. That car you “sold” in June finally got delivered in September? The revenue (i.e., what’s recorded in your books) is recorded in September when the customer receives the value of what they purchased. Login to UFABET เข้าสู่ระบบและรับโบนัสสุดพิเศษ and receive exclusive bonus rewards.
It’s pretty simple when delivering a single item like a car. It gets more confusing if you have a multi-month service contract like a marketing campaign. In this case, there are a few ways to calculate revenue (sooo many confusing accounting rules), but the easiest way to think of it is how much of the service have you delivered at the end of the month? If I have a $1,000,000 marketing campaign and we’re 15% of the way in after month one, revenue would be $150,000.
That way, your revenue reflects the work you’ve been doing month to month, rather than a one-time monster hit of $1,000,000 when the “sale” is made, or the money hits the account.
Tracking Revenue allows you to track the work you are performing over time and how much you really “earned”.
Payment – This is completely independent of sales and revenue. If you take deposits, get paid on delivery, or offer payment terms, when you receive the cash does NOT affect sales or revenue. That’s what Accounts Receivable is for (which we’ll save to be the subject of another article).
Some examples:
1) Basic transaction – In its simplest form, imagine someone walking into a store and buying a pack of gum. The sale, revenue and payment all happen at the same time. Simple and complete. Sales = Revenue for the month.
2) Basic transaction with delivery date – Imagine the gum example above is a $50,000 car which was sold in June and delivered in September and had a $5,000 deposit with the rest due on delivery.
The sale was done in June (when the contract was signed).
The revenue is recorded (i.e., hits the books) for $50,000 in September when the car was delivered (i.e., the value was transferred to the customer). This is when the sale is entered for accounting purposes.
Payment was a deposit of $5,000 in June with the remaining payment completed in September. These payment terms don’t affect sales or revenue.
3) Contracted service over several months – Imagine selling a marking campaign for $1,000,000 in June for a project that starts in August and runs to the end of the year.
The sale was done in June. High five. You just landed a big contract.
The revenue is recorded as value is delivered to the customer – even if the work isn’t complete, but it is part of the overall contract. Maybe there is some setup work. Perhaps some A/B testing is required. Even though the marketing campaign isn’t in full swing yet, the value of doing the early groundwork has been completed, so you get to record the share of the work that has been completed.
The revenue might look something like this (depending on the work schedule):
August revenue – $140k
Sept revenue – $240k
Oct revenue – $180k
Nov revenue – $320k
Dec revenue – $120k
The payment will reflect when the cash comes in. Was there a deposit in June when the deal was closed? Were your payment terms 1/3 on start 1/3 at the halfway mark and 1/3 on completion? Whatever the payment terms and actual collection date, it doesn’t affect revenue.
Why do all this?
We get it. It’s a bit confusing. Why bother with all this noise? When done right, it actually really helps get a handle on the numbers. No more having a huge sales month, then a dry spell when the work is actually happening. The idea is to “match” the revenue to the right months. It takes a bit of getting used to it, but once you get it, you’ll never want to go back to the idea of “sales” the way you think of it now.
If all this financial talk makes your head spin, don’t stress—we’re here to save the day! As a progressive CPA firm, we specialize in making accounting not suck by making understanding your numbers quick, simple and intuitive.
So, the next time someone asks you about the difference between Sales and Revenue, you’ll impress them with your newfound accounting expertise. And remember, if you need any help making accounting not suck, give us a shout! We’ll be your financial superheroes, swooping in to rescue you from the clutches of confusing, financial jargon.
We know the feeling. It’s that time of year when you’re scrambling to get your books in order to send to your accountant. You’re hoping they can figure out a plan, so you don’t owe an arm and a leg in taxes. It’s enough to make anyone want to crawl under a rock until after year-end and tax season is over.
But it doesn’t have to be that bad.
First things first – start early. We know, we know, it’s easier said than done. But trust us, the earlier you start, the less stressful it will be. Don’t wait until the last minute to start getting things in order. The best time to get this started was a year ago. The second-best time is now. If you know your systems and process are going to lead to another messy year end several months from now, it’s time to face it head on. Every hour you invest in sorting this out now will save you several hours (not to mention the screaming headache that comes along with it) at year-end.
Next, get organized. This might sound obvious, but you’d be surprised at how many people don’t have a system (even a basic one) in place. Do you have clear job descriptions with roles, responsibilities and procedures for all activities in the accounting department? We get it. That sounds painful to put in place. But what’s even more painful is facing the year-end mess, not to mention the financial surprises when you get your books back from the accountant. Wait? What?! Our numbers weren’t right all along??
Now, automate as much as possible. Accounting technology is improving all the time. From receipt tracking to time tracking to job costing, there is almost certainly a software out that that can help you streamline, making everything leading up to year end much, much simpler.
Finally, don’t be afraid to ask for help. We get you might feel stuck, frustrated, or even embarrassed about the state of your books. That’s okay! You just need some assistance. That’s where we come in. Our job is to help make accounting not suck and to make sure your year end is smooth and easy. The help that you need may not be limited to accounting, sometimes it can be funding or budget. When that happens, you can gather information on courses like the Kiana Danial course.
But don’t take our word for it, this is what one of our client’s year-end accountants said about our work:
Start now – contact us and make your next year-end so much easier!
As a small business owner, you probably got into your business because you love fixing things or providing top-notch customer service. The last thing you want to think about is accounting, let alone the differences between cash basis accounting and accrual accounting. Aside from accounting, you must also protect your business digitally through online tools like that on www.zerobounce.net/free-email-verifier/. Make sure as well that you regularly improve communication with data.
But you really need to get the difference for the success of your business if you plan on growing past a few trucks.
What is Cash Basis Accounting?
Cash basis accounting is a simple way to keep track of your business’s finances. It records transactions when cash enters or leaves your business. This means you record revenue only when you receive payment and expenses only when you make a payment. It’s straightforward and easy to understand but doesn’t give a complete picture of your business’s financial health (like if there are large customer deposits or down payments on what you’re buying).
What is Accrual Accounting?
Accrual accounting records transactions when they occur, regardless of when you receive or pay for them. This means that revenue is recorded when you earn it, not when you receive payment, and expenses are recorded when you incur them, not when you make a payment. This method provides a more accurate picture of your business’s financial performance and allows you to plan for the future.
An Example of Accrual Accounting
Let’s say you’re an HVAC business that installs a new dual fuel heating system for a customer in January, and they pay you in February. Under cash basis accounting, you would record the revenue in February. However, under accrual accounting, you would record the revenue in January, when the work was completed. This gives you a more accurate representation of both January and February results. You did the work in January. You incurred costs in January. So, you should record the revenue in January. Way better to make informed decisions based on that data.
It’s tricky to get started with and can be confusing until you get the hang of it. But it’s worth it. Almost all successful growing businesses use accrual accounting and the sooner you make the switch, the better!
Implementing Accrual Accounting
If you’re not already using accrual accounting, we recommend working with a professional accountant to help you make the transition (hint, hint). They can ensure that your financial records are accurate and help you understand the implications of your financial statements. But aside from accounting, there may also be other areas in your business that need some work. That’s why it may be wise to educate yourself with topics like legalzoom vs zenbusiness.
So, What Now?
If you own an HVAC/Electrical/Plumbing or other trade business and are in the $1-15 million in sales range, now is the time. If you’re not sure where to start, give us a call. We’re happy to help!
Did you know no matter what industry or size of business you’re in, there are really only a few levers you can pull that will impact profit or cash?
While it can seem daunting, the Income Statement is really only made up of 5 major sections, and within those sections, three are your levers: Sales, Cost of Goods Sold, and Operating Expenses.
Similarly, there are often only three levers on the Balance Sheet that can be pulled to help drive improved cash flow: Accounts Receivable, Accounts Payable, and Inventory.
In this video, Spencer briefly explains these levers and how they can impact the profitability of your business and improve cash flow.
These are the key levers we focus on at Shift as part of your monthly Insights package.
How could focusing on these key levers drive more profit into YOUR business and improve your cashflow?
We get it. Nobody likes tracking their time. There’s no way around it. It sucks. But as much as it sucks,
there are 3 critical reasons to enforce strict time tracking:
1) Increase performance of an individual team member by $24,912.
2) Avoid the turtle growing to its tank and avoid write-offs!
3) End the misquoting of customers.
Reason #1: Increase Performance of an Individual Team Member by $24,912
If you’re tracking time, you can measure utilization. Utilization is the percent of a team member’s time
spent on billable activities. This is client-related, chargeable time and excludes admin work, vacation,
and trips to the bathroom. Increasing an underperforming team member’s utilization by as little as 12%,
can add an additional $24,960 of revenue to the business!!!
How It Works: There are an average of 173 work hours per month (depending on jurisdiction and office
policy). Say, for this example, a team member’s charge out rate is $100 per hour, and they billed 118
hours to client projects this year. Also say the target utilization for the company is 80%.
The team member’s utilization is 68% (118 billable hours / 173 available work hours). This is 12% below
the target of 80% utilization. Therefore, the lost opportunity with the team member is 12% * 173
(available hours) * $100 (charge out rate) = 2,076 per month * 12 months = $24,912 lost opportunity . . .
with this ONE team member.
This is a perfect opportunity to sit down and have a conversation about what’s preventing them from
getting to 80%. Maybe they just don’t know that’s the expectation. Maybe there are processes or other
admin in the way. Perhaps they haven’t been trained. Maybe, they’re just the wrong fit for your
company. Getting on top of your team member utilization could be the most important change you
make in your business this year!!!
Reason #2: Avoid the Problem of a Turtle Growing to its Tank
Did you know a turtle will grow based on the size of tank it lives in? Want a small turtle? Give it a small
tank. Want a monster? Big tank it is. The same thing is true when it comes to professional services.
Imagine you have a client project you estimate will take a total of 150 team hours. Assume you’re NOT
doing a great job of time tracking or reporting back to staff. Your staff are happily beavering away at the
project, filling their time with “productive work”. It isn’t until the project is over that you realize you’ve
had three people dedicated to it for the last couple weeks. That’s 240 hours!!!
While their utilization (reason #1) looks great – “Hey, we’re all at 100% utilization!!!”, you have to write
off 90 hours of time. At $100 per hour, that’s $9,000 written off. Ouch!
Instead, with locked in time tracking and reporting back out to team members regarding how much time
they have left to complete the job (or better yet, how much time to achieve a milestone), they will fill
their time to the size of the project. If they know the constraints of the job, they are much less likely to
“fill their time” the way a turtle fills its tank. They’ll allocate it where it’s supposed to be. No surprise
for you, no frustration for you.
Reason #3: End the Misquoting of Customers
Unless you have a data-driven, rock-solid report of how much time historical jobs take, it will be almost
impossible to get your quotes perfect. No big deal, you say? You’ve got a good idea and base your
quotes off that?
He’s the thing . . . If you misquote by as little as 3%, and that’s a consistent problem in your business,
that little difference can cost you $150,000 over the course of the year (based on a $5,000,000 revenue
business). Those little 3% differences add up quickly over time!
Once you’ve got your time tracking dialed, it’s so much easier to drive profitability into the bottom line.
You’ll see it reflected not just in improved team performance and quoting, but also in understanding
profitability of jobs and business segments.
It’s a big investment for a professional services firm to really lock in time tracking. It’s also one of the
biggest opportunities for positive change!
Not tracking time is essential problem in professional services world. If you’re not sure how to solve this
problem, give us a shout. We’d be happy to talk you through it!
Thank you for taking a moment to consider this letter during what is certain to be a very difficult time for your family as well as your business in today’s uniquely challenging environment. My sincere condolences for the recent loss of your father.
I hesitated to write this letter given the recent news. However, I proceed as I believe you have an opportunity to make a positive impact in the lives of your customers and your customer’s customers.
My name is Spencer Sheinin and I am the Founder and CEO of Shift Financial Insights. Like most SMEs. our business has been significantly and negatively impacted by the COVID pandemic. More specifically, our revenue is down about 30% with risk of it going even lower. Unlike a lot of businesses who have been impacted legislatively or situationally (i.e. those in the events business and retail, to name a couple), a significant amount of our revenue decrease has been voluntary.
For context, we offer outsourced accounting (specifically, outsourced bookkeeping, controller and financial advisory services) to other SMEs. In light of the current business climate, we decided to proactively reach out to our clients who have been financially affected by the pandemic. We talked to them about our financially survive to thrive program. We’ve offered different levels of discounts based on how badly they have been hit. In some cases, it’s “pens down” until business resumes. In others, it’s a significant discount until revenue picks back up. Regardless of the discount, our approach is that we need to support each other through this so we can all be successful together on the back end.
Fortunately, a number of our clients are financially stable and have generously declined the discount. We’re a relatively small business and can only practically afford to offer so many discounts. In one specific call, our client noted the “social karma” of what we were doing. His business is one of the lucky ones whose revenue has actually increased during COVID and was happy to maintain his current pricing so we could offer the discounts to those that really needed it. I hung up the phone feeling surprisingly emotional; both appreciative of his gesture and inspired that he chose to think of others in a time of need, rather than be opportunistic.
Being a small business that has lost 30% of revenues, I also must be financially responsible so I can continue to serve my clients (it may sound cheesy, but I fundamentally believe the core service we provide will help our clients make better decisions to financially survive this crisis). We have done our best to reduce costs where necessary and have made the hard decision, like so many businesses, to reduce our overall team size, while also protecting the financial systems we use for our business, and that’s why services from sites such as https://www.fortinet.com/solutions/industries/financial-services help us a lot in this area. We’re hopeful that the various government programs being announced will help those that have lost their jobs and eliminate the need to cut even deeper. Although they haven’t labelled it as such, the various programs announced by the government for small businesses are effectively financial “survive to thrive” programs.
I have also taken the financial “survive to thrive” program up the supply chain as well. I’m asking all of my suppliers and contractors to also help so we can continue to help as best we can. Which comes to the purpose of my letter.
I am a customer of Shaw for internet services. My business has been fully remote for the past few years (I’m lucky in that my entire team has been accustomed to working remotely as each team is given some remote jobs to do). I’ve upgraded a couple of times over the years to faster plans due the demands of video conferencing. To clarify, I’m not a gamer and my internet use is strictly work related, plus some recent socially distanced social time with friends.
I called Shaw inquiring if there were any programs to help SMEs like me. After a long conversation with a customer service member, it was clear Shaw was making no offers to help SMEs through this tough time. No discounts, no deferrals. Frankly, nothing.
I was told Shaw was not cutting off service to those who aren’t paying their bills right now and would negotiate a payment plan in due time. I asked if I could organize some sort of payment plan now and I was told no. I had to be in default to get a payment plan, but there was no option for a customer who was current with their bills. I asked to speak to customer loyalty or someone more senior and I was told they all have access to the same programs and there is nothing that could be offered to help.
To be clear, the customer service rep on the phone was extremely professional, pleasant and friendly. I didn’t catch his name, but my compliments to both the employee and your training programs. I have no doubt they are on the receiving end of a lot of abuse. He handled himself exceptionally well.
That being said, I left the call feeling dejected.
I am a customer who is offering discounts to my clients (who are also your customers) to help them financially survive, yet all of us are paying you at 100% rates. Looking at your most recent published quarterly report (Q1), you did nearly $1.4 billion in quarterly revenue, had $162 million of quarterly net income and are sitting on $132 million dollars in cash. From a sales perspective, rounding to the nearest tenth of a billion, you have $1.4 billion more revenue and have generated $0.2 billion more net income than me. Yet, somehow, I can find ways to support my SME customers through discounts, but you can’t. And, in fact, my discounts to my clients are effectively helping subsidize your monthly (non-discounted) fees.
Be brutally honest with yourself: Does that make sense to you?
During the call, I learned that Shaw was offering free Shaw Go Wifi to everyone (customer or not). I also learned that Shaw was offering TV customers additional programming at no cost. I applaud both of those initiatives. The purpose of this letter is to inquire as to your lack of programs to support SMEs.
We all know SMEs are the backbone of the Canadian economy. We are also the backbone of your economy. We are your customers. Our suppliers and customers are your customers. Our staff and contractors are your customers. Our suppliers’ staff and contractors’ staff and customers’ staff are your customers. Plus, our suppliers’, contractors’ and customers’ families are also your customers.
Around the world and across Canada, entrepreneurs are scrambling to rebuild a shattered economy. The backbone of the economy will be rebuilt, driven first by the efforts of entrepreneurs. This is your opportunity to step up and support the one type of customer who has supported you for so long.
I call on Shaw to be a champion for SMEs. Not only in your own business, but for all utilities in a financial “survive to thrive” movement. Your opportunity is to pick up tons of new customers by offering discounts now for your essential services to help them financially survive so we can together thrive on the back end. Your opportunity is to call out those utilities, including your competitors, that AREN’T supporting your customers and your customers’ customers and applying pressure on them by showing SMEs what you are doing to be part of the financial “survive to thrive” movement.
I get it. An internet bill isn’t likely the make or break of any business. But we are in this together. Supporting me allows me to support my clients and team members who can in turn support their suppliers, employees and families. There are lots of ways to help SMEs right now. We’re all struggling through this and we’ll only get through this together. That means cutting some slack to those most in need.
Your business is clearly an essential service, especially right now. I imagine the stress on bandwidth with so many more remote employees and virtual communications and meetings if this comes to affect you or your employees, you might need to find a doctor who can prescribe a delta 8 pen. I have no doubt you are doing your best in a doubly difficult time and I thank you for your efforts to keep the communications flowing. I’m also sure you are already incurring some extraordinary costs and working hard to ensure Shaw remains in a financially strong position to continue delivering your critical services.
Despite all the challenges, I also ask you to take a few moments to think of how you can help the community of SMEs who will lead us out of this financial crisis and be part of your future growth. Discounts, deferrals and free upgrade of services are all viable options, and I’m sure you and your team can come up with many more ideas.
Thank you for your time and I look forward to hearing your contribution to the financial “survive to thrive” program.
To any entrepreneurs reading this open letter: I have two asks of you:
Continue this effort of making use of Local Viking reporting tool and applying pressure to Shaw and other large businesses who are in position to help you out. We are all in this community together. Large business and small business.
Do not accept any discounts you don’t need. If you are offered discounts from a business (large or small) and you’re in the fortunate position of not needing it, thank them for their generous offer and decline it. Allow them to offer the discount to a business that needs it more than you. We are in this together and this is not the time to be opportunistic.
Sincerely,
Spencer Sheinin Accountants, CA CEO and Founder Shift Financial Insights
CC Prime Minister Justin Trudeau CC Premier John Horgan CC MP Patrick Weiler (MP for Sea to Sky Country)
Sales and Revenue are terms that often get mixed up, but they have very distinct meanings.
We know the feeling. It’s that time of year when you’re scrambling to get your books in order to send to your accountant. You’re hoping they can figure out a plan, so you don’t owe an arm and a leg in taxes. It’s enough to make anyone want to crawl under a rock until after year-end and tax season is over.
As a small business owner, you probably got into your business because you love fixing things or providing top-notch customer service. The last thing you want to think about is accounting, let alone the differences between cash basis accounting and accrual accounting. Aside from accounting, you must also protect your business digitally through online tools like that on 
