13: The Difference Between Revenue And Profit ~ What A Small Business Owner Or Online Virtual Bookk
13:The Difference Between Revenue And Profit ~ What A Small Business Owner Or Online Virtual Bookkeeper Needs To Know And How It Is Used For The New PPP Loan Second Draw
Understanding the difference between revenue and profit is crucial to a business’s success. They both show up on your income statement or profit and loss report, but they are very different numbers. Whether you are a small business owner or have an online virtual bookkeeping business, you’ll want to listen in today as we talk about what these differences are and why you need to know what each one represents. This is extremely important when looking at the new PPP Loan Second Draw qualifications. If you are a small business owner or if you are an online virtual bookkeeper, you need to know the difference so that you can make smart business decisions. Do not miss today’s episode especially if you are considering the PPP Loan Second Draw…
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Show Notes:
Understanding the difference between revenue and profit is crucial to a business’s success. They both show up on your income statement or profit and loss report, but they are very different numbers. Today we are talking about what these differences are and why you need to know what each one represents. This is extremely important when looking at the PPP Loan Second Draw qualifications. If you are a small business owner or if you are an online virtual bookkeeper, you need to know the difference so that you can make smart business decisions. Do not miss today’s episode especially if you are considering the PPP Loan Second Draw…
Welcome Back…Today we are talking about the differences between revenue and profit. Often these two words are interchangeable or used as one in the same word, but they are actually very different numbers. Have you been guilty of using these words without really knowing what they mean? If so, after today’s podcast episode, you will be more mindful and will know exactly what each word means as well as how it impacts your small business.
We’re going to start with REVENUE. Revenue is defined as all income generated from your business during a specific period of time. It consists of all income before any expenses. When you are looking at an income statement or profit and loss report, you will find revenue at the top of your income statement. It may also be called sales or income. Just know that whatever you have it labeled as in your chart of accounts, it is all the income generated from your business.
Now, PROFIT on the other hand is what is remaining from your revenue after all your expenses have been deducted. You will often hear people reference this as your “bottom line”. The profit is simply calculated by taking your total income generated from your business or revenue less all your expenses. These expenses would include cost of goods sold, wages, advertising, office expenses, utilities or telephone just to mention a few. Really, any expense your business is incurring. Profit is also often referred to as your net income. Every business needs to earn a profit to be successful and it is normally the primary goal of the business.
You may have also heard about the term gross profit. Before we dive too deep into gross profit, I want to quickly explain what cost of goods sold are. Cost of goods sold is the term referred to all the costs that are directly related to selling your product. This could include cost of materials and labor directly used to create the product. Now, back to gross profit. This is calculated by taking your total cost of goods sold and subtracting it from your total revenue amount. Your goal for your gross profit would be to always have a positive number. If this number is a negative number, it means that your cost of goods sold is actually higher than your revenues. In this case, you would want to quickly take another look at your sales prices and make sure that you are charging enough to cover all your costs of the product you are selling and include the additional amount you want to make on each sale. If you are seeing a negative gross profit, you will want to make sure you catch it and make any changes necessary before too much time has passed and you have been consistently losing money on the sale of your products. This is a good reason why you want to make sure you are staying up to date and current on your bookkeeping so that you would catch an issue like this and turn those numbers around. Having your books up to date is a very crucial piece of running a successful small business.
Another thing to think about is the fact that you could easily have revenue and no profit, but on the flip side, you cannot have a profit without revenue. For example, if you have more expenses than revenue, there would be no profit, but you would still have revenues from your sales. You also would never have a negative revenue number, but you could have a negative profit number – or a net loss.
So, why is this important if you are considering the PPP Loan Second Draw? The first qualification for round 2 of the PPP Loan is to have gross receipts or revenues that have dropped by more than 25% in 2020 compared to 2019. They are looking at these numbers on a quarter-to-quarter basis. You will want to look at your income statement or profit and loss report for each quarter and compare your revenue amounts to see if you do indeed qualify with more than a 25% decrease in revenues. If you are using a software for your bookkeeping such as QuickBooks Desktop or QuickBooks Online, you can quickly create a profit and loss report for each quarter and modify your report to include the prior year and the dollar amount difference as well as the percentage. This report will tell you right away when you look at your gross receipts or revenue number and the percentage reflected on the report. This is the report you will want to bring to your bank to start the conversation about applying for a PPP Loan Second Draw.
Lastly, just remember that profit is a part of your revenue and a positive profit number is an indicator that the business is doing well financially. If your expenses are more than your revenues, you will show a negative profit number or net loss.
If you are thinking about starting an online virtual bookkeeping business, I have a few coaching opportunities available. I am only taking on a few one-on-one coaching clients each month, so if you are ready to start your own online virtual bookkeeping business, go to www.FinancialAdventure.com/Discovery and let’s chat. I help you start, grow and scale your online virtual bookkeeping business with actionable steps and accountability to fast-track your success by setting up your business quickly and start getting clients right away, and having clients means having revenue. What are you waiting for? Like Karen Lamb says…A year from now you may wish you had started today.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.
