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The basic accounting concept all business owners should know about their business

You’re the busiest you’ve ever been and business is good, but there is next to nothing left over at the end of the month. Your mate who you know is doing less than you seems to have cash to splash! 

Bookkeeping online

Confusing, right? 

This is why we are talking about Revenue vs Profit. 

A business can have a decent level of revenue but very little profit so it is important to understand these concepts to guide your decision-making for your business and to set targeted goals to grow and scale your business.

What is it? Revenue is the ££ generated from your usual business activities, also known as sales or turnover.  Profit is the amount of ££ left over after all expenses have been incurred 
How do I calculate it? No of sales x sales price = total revenue Profit can be measured at different levels: 
Gross Profit =Revenue – Cost of Goods sold
Net Profit = Revenue – ALL expenses 
What drives it? Revenue is EXTERNALLY driven (i.e. relies on your customers’ buying from you)

Revenue can be improved by increasing the sales price or getting more sales. 
Profit is INTERNALLY driven (i.e. you control the costs in your business)

Profit can be improved by cutting costs without compromising quality. 
What does it tell me? How well the business is performing
Where demand for products or services lies 
Where to allocate resources 
The business’s ability to retain the money generated through sales
If the margin or mark-up applied in pricing is working for you 
How much is left over that I can pay myself or use to grow the business
Low profit can indicate high operating costs 
What are some goals  I can set? Introduction of a new service line to increase revenue by 6%
Increase sales of 10% product by taking out a radio advert during the Christmas period 
Introduce a referral program to increase sales by 12% during 2024 
Increase sales by 25% by hiring a new member of staff to meet demand 
Increase profitability by sourcing a new supplier for raw goods and saving 10% per year 
Cut out unnecessary expenses without compromising quality 
Review your processes to ensure you are as efficient as possible with the resources available
Look at areas of your business where you can automate, outsource or improve efficiency 

Revenue is a very important measure but it is just one piece of the puzzle when it comes to business finances. As the owner of a small business, profit is key. 

So never lose sight of your goals around profitability and growing your bottom line.

BERRYS can support you in optimising your profit by looking at the 3 Ps:

  1. Processes – we’ll look at everything you do for opportunities to improve, automate or outsource saving you precious time and money. 
  2. Performance – we’ll take a deep dive into your financial performance to assess your job, service or product profitability.
  3. Price – we’ll perform margin analysis and competitive positioning analysis to make sure you are charging the right price, every time.
Accountant with client
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