Sales revenue and cash flow are often mistaken for each other or incorrectly used. Revenue is the measurement of your business’s sales and marketing efforts. Cash flow is the activity of cash that comes into and goes out of your business during a specific period.
Revenue is essentially money coming into the business and does not account for the cash going out of the company. Revenue is recognized on a cash basis when your business receives payments for services. On an accrual basis, revenue is recognized when invoices are created.
Positive cash flow affords a business the freedom to pay bills, make purchases, cover expenses, and grow the business. While shortfalls in cash happen to all companies, no business can survive if they do not generate cash from sales and marketing revenue growth efforts.
Sales revenue is the income a company receives from the sale of goods and services. It is essential to understand that sales revenue does not mean cash received. A portion of sales revenue perhaps comes into the business as cash, yet a portion of revenue is managed through accounts receivables.
Sales revenue is an integral part of funding a company’s growth. Coupled with sound bookkeeping, such as Expex and an accounting system, managing receivables and collecting payments impacts the company’s ability to expand.
Understanding your small business’s cash flow is one of the most critical financial metrics a business owner should be concerned with. Cash flow is the activity of cash that comes into and goes out of your business during a specific period. Positive cash flow is critical for all companies as it enables the business to pay its expenses and invest in opportunities to grow. While shortfalls in cash happen to all companies, no business can survive if they do not generate cash.
The cash flow statement measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses.
Figuring out your company’s cash flow can be looked at in a couple of different ways. The first is to review your company’s cash flow over a period of time. In small businesses, this is typically done using a formula for calculating operating cash flow. Utilizing the formula below will provide you with how much cash your business is generating from operations.
Cash Flow from Operations = Net Income + Non-Cash Items + Changes in Working Capital
While this formula tells you how much cash you’re generating, many small business owners are concerned with how many days of cash they have available. This can be calculated with the following formula:
Cash on hand ÷ ((Operating expenses – Non-cash expenses) ÷ 365)
However, this formula doesn’t answer how many days of cash I have on hand today. This typically needs to be managed daily with a spreadsheet and information from your bank. However, there are now automated tools available to track the number of days of cash you have at all times.
The critical factor in the difference is that profit reveals the amount of money left over after all expenses are paid. The other reflects the net flow of cash in and out of your business.
There are now systems that are a hybrid between software and humans, aka an online bookkeeper. These systems automate the work that the bookkeeper performs and can be integrated into bookkeeping software like QuickBooks. These systems can be used to automate tasks that a traditional bookkeeper would perform and safeguard and prevent fraud by eliminating human interaction and access to your financial accounts.
Automated bookkeeping applications implement bank-level security and financial controls, ensuring all aspects of the financial data and transaction processes are safe and secure. Schedule a demo of Expex and enjoy simple and easy bookkeeping and a healthier business.