Your Business Is Making More Money So Why Aren't You Keeping More of It?
Your company just had its biggest year ever.
Revenue is up.
Sales are growing.
Customers are coming in.
There's just one problem.
It doesn't feel like you're making more money.
This is one of the most frustrating situations for a growing business owner.
The explanation often begins with understanding one important principle:
Revenue isn't the same thing as profit.
Where Did All the Money Go?
Suppose your company generated $2 million in revenue last year.
That's impressive.
But revenue is only the beginning of the financial story.
Your company may also be paying for:
Employees
Contractors
Inventory
Materials
Vehicles
Fuel
Insurance
Rent
Software
Advertising
Equipment
Interest
Professional services
Other overhead
As revenue grows, many of these expenses can grow with it.
A company can therefore generate record revenue without generating record profits.
Pay Attention to Margins
Business owners shouldn't only ask:
“How much did we sell?”
They should also ask:
“How much did we keep?”
Understanding gross profit and net profit can provide important insight into the performance of your business.
Margins can also reveal trends that revenue alone may hide.
Imagine sales increased 20%, but operating expenses increased 35%.
The top-line number looks great.
The underlying financial picture may not.
Growth Can Actually Consume Cash
Rapid growth can create another challenge.
You may need to hire employees, purchase inventory, acquire equipment or spend more on marketing before receiving the revenue associated with that growth.
That's why growing businesses need accurate bookkeeping, consistent reporting and visibility into cash flow.
Know What's Happening Behind Your Revenue
Accurate financial records can help you identify:
Where spending is increasing.
How margins are changing.
Which expenses are consuming revenue.
Whether profitability is improving.
How much cash the company needs.
And whether growth is actually strengthening the business.
SBC Bookkeeping & Consulting provides ongoing bookkeeping & consulting to help business owners get better visibility into these questions.
Our objective isn't simply to categorize transactions.
It's to give you accurate books, clearer financial information and experienced support for understanding your business.
Revenue tells you how much business you're doing.
Profitability helps tell you how well you're doing it.
If your revenue keeps increasing but you're wondering where the money is going, it may be time to take a closer look at your numbers.
Talk to SBC Bookkeeping & Consulting about your bookkeeping and financial reporting.