For every small business, keeping up the financial well-being depends on having healthy revenue and cash flow. In order to attain business goals and stay financially sound, small businesses must scrutinize their operating performance and current financial position regularly.
Among these, sales revenue and cash flow are the two most fundamental numbers you should analyze because they explain the total amount of money you receive and where that money goes. If these figures are on the fritz, it means your business performance is in trouble. Knowing these figures can help you measure the success of your small business and make informed decisions.
Sales revenue is the income a business realized from the sale of its products or services and reports on its income statement. Revenue is the income generated by a business before subtracting any expenses. Sales and Revenue are often used interchangeably in accounting. Bear in mind that revenue does not essentially mean cash received. When a retail store received cash from a customer, its retailer’s sales revenue.
Operating revenue is the income a business earned from core operations. Non-operating revenue is the income a business earned from sources like investments or sales of assets. Sales revenue not only helps in analyzing the company’s financial health but also demonstrate the performance of sales and marketing efforts.
Business Cash Flow
Business cash flow is a measurement of money both flowing into and moving out of a business in a particular period and reports on its cash flow statement. If you have positive cash flow, your business has more cash coming into your business so you can pay for your expenses. When you have a negative cash flow, you do not have enough money to pay for expenses or payments. Having a negative cash flow does not essentially mean loss.
The idea of having “sufficient money to meet your financial commitments” is called working capital. It helps in analyzing your business’s financial health. You can also improve your cash flow by increasing sales, higher prices, lowering operational costs, efficient collection of accounts payable and small business loans.
Sales Revenue vs. Cash Flow: The Bottom Line
When comparing both sales revenue and cash flow, remember sales revenue is the amount remaining after deducting all operational business costs, while cash flow is the measurement of money coming in and out of your business. With that said, the key differentiating factor between the two is time. Revenue tells you how sound your business financials are. In a nutshell, it means how successful your business is, but doesn’t demonstrate if you have the money to get through the long-term.
After reading through this article, we hope you now know the difference between sales revenue and cash flow and can responsibly manage your small business’s accounting to ensure sustainability and growth for your small business.