From contracting firms to coffee shops, the financial well-being of many small businesses relies on keeping both revenue and cash flow at healthy levels.
Sales Revenue vs. Cash Flow
Revenue, as Investopedia defines it, is the money a business generates from the sale of goods or services, calculated as the average sales price times the number of units sold, before the deduction of expenses. The same source defines cash flow as the amount of cash going in and out of an organization during its operation. A seasonal business like landscaping or holiday retail would likely see its cash flow change appreciably at different times of the year. Revenue and cash flow are reported on separate financial statements.
The Basics of Revenue
- Reported on your income statement
- Helps investors and industry analysts gauge your company’s financial health
- Shows the effectiveness of sales and marketing efforts
- Operating revenue = income earned from your core business operations
- Non-operating revenue = income earned from other sources, like investments or sales of assets
The Basics of Cash Flow
- Reported on your cash flow statement
- Helps investors and industry analysts gauge your company’s financial health
- Positive cash flow = more cash at the end of an accounting period than at the beginning
- Negative cash flow = less cash at the end of an accounting period than at the beginning
- Can be improved through increased sales, higher prices, lower operating costs, more efficient accounts payable collection and small business loans
Revenue and cash flow are key components of your company’s financial health. Use this quick guide as a starting point for learning more about how to enhance your business.
