Many people who are starting a small business are unfamiliar with business language and may use the words “revenue” and “profit” interchangeably. However, they are definitely not the same thing. It’s important that anyone who is starting a small business or even a non-profit agency learns the difference between the two sooner rather than later. Let’s look closely at revenue and profit, as well as how they differ.
First, let’s examine what “revenue” truly means. Simply put, revenue is the amount of money earned before the total operating expenses are subtracted. It appears at the very top of the income statement and does not take into account any of the costs associated with earning that revenue. Another name for revenue is gross income. It is also often referred to as the “top line”.
Keep in mind that if your small business (or non-profit agency) generates $100,000 in revenue and it costs $30,000 to accomplish that (advertising costs, cost of goods sold, salaries), then that means your profit is only $70,000. Non-profits do not donate 100% of their revenue because they also have operating expenses. Business owners are not able to pocket 100% of their revenue because they have expenses associated with running their businesses.
Now, let’s look at profits. Profit is synonymous with “bottom line”. Profit is the money that is left over after a business pays for all of its expenses. In a non-profit scenario, there are expenses associated with organizing an event that raises funds for charity. At the end of the day, profit is what you’re left with after you’ve paid all the bills associated with your business. Examples of such expenses are as follows: marketing, advertising, utilities, cost of goods sold, staff salaries, website maintenance, research and development, office supplies and administration.
Therefore, $ 100,000 in revenue only tells you a very small part of the story. If someone tells you that their revenue is $100,000 a year, you are only scratching the surface of that business’ financial information. If it cost them $90,000 to achieve $100,000 in revenue then that means they only made $10,000 in profit.
The goal of every business is to increase profits and any small business owner who says that they don’t care about profit is lying. At the same time, the pursuit of profits should not compromise integrity. At the end of the day, the companies that are ahead are those that are able to utilize technology to effectively manage their expenses without compromising integrity.
There are plenty of knowledgeable small business instructors out there that are able to teach you how to use technology to increase your profits, manage your expenses and make sure your business stays ahead of the crowd.
By Yana The Cubicle Dweller
Invoice Office is a free accounting software for small business that manages all your accounting tasks.
Our small business accounting software is easy to use and sends invoices, tracks time and expenses accurately.
