John Dewey once said, “We do not learn from experience…we learn from reflecting on experience.”
That is true in life as well as in your business. If you simply work as hard as you can day after day, head down, making sales, and serving customers with excellence, you will experience growth.
But unless you set aside regular time to step back and reflect on your business and where that growth is coming from, you will never learn the valuable lessons that will help you sustain it.
That’s where the value of tracking your annual business revenue comes in.
Accurately tracking revenue is important for any business, but it is especially so for service-based businesses. Your income can’t be easily traced back to a product or the movement of inventory. So you especially need to make sure you are taking a close look at your income streams each year.
An annual business review will put you in a much better position for good financial planning, tax preparation, and growth strategies to keep your business booming. This post will provide you with a step-by-step guide to tracking your annual business revenue accurately. Let’s go!
Understanding Business Revenue
Let’s begin with a definition of business revenue. A quick Google search will tell you that business revenue is “the total amount of money a company brings in from its operations over a set period of time before any expenses are subtracted.”
However, if you are trying to run a successful company, that doesn’t fully explain all you need to know. There is a big difference between revenue and profit.
A company could have an impressive amount of revenue but be headed for bankruptcy and closure if its expenses are too high or it fails to have a good strategic plan. For that reason, smart business owners make sure they pay close attention to their profits…the money that is left over after costs have been factored in.
A company could have an impressive amount of revenue but be headed for trouble if its expenses are too high or it fails to have a good strategic plan.
It is also essential to distinguish between different streams when thinking about business revenue, especially if you run a service-based business. All of your money doesn’t typically come from the same place.
You may have income from the services you provide, add-on products you sell, subscription plans you’ve created, or any number of things. Be sure to treat each revenue stream independently since each one has its own unique “personality” and advantages for your business.
Service Industry Revenue Tracking
To accurately track annual business revenue for your service-based business, you need to start on the right foot by choosing the right accounting method: cash basis or accrual basis.
Cash Basis accounting records transactions at the time the exchange of money occurs.
Accrual Basis accounting records them when the transaction happens but before actual payments are made.
How your business operates will determine which method is best for you, and your CPA team can help you decide. Smaller businesses and sole proprietors tend to prefer a cash basis since it is more straightforward. Accrual basis utilizes “accounts payable” and “accounts receivable” to smooth out income over time, which makes it attractive to larger (more complex) companies.
Once you’ve made that decision, you then need to find good accounting software that is tailored for service-based businesses. Not all providers are the same, and many include complicated extras that you don’t need.
The best businesses run “clean and lean” whenever possible, so here are 3 reliable accounting software programs we like:
Whichever software you use, you can further streamline your accounting by setting up categories (and even subcategories) for your different revenue streams. That way, as money comes in you can easily see which areas of your business are doing well and which might need some help.
Accurate Income Reporting From Multiple Sources
If you are wise, you already know not to keep all of your eggs in one basket. Having money coming in from several places helps ensure your business can keep going when something goes wrong.
When you have multiple sources of income, you must track and report them accurately. Identifying and tracking revenue from different services you offer also allows you to measure how each area of your business is performing.
Additionally, be sure to differentiate between one-time projects and recurring revenue streams. Consider offering “retainer” packages for your customers where you regularly invoice them in order to create a more predictable flow of income.
Implementing Invoicing Best Practices (Service Business Financial Tips)
So what are some of the best practices for invoicing? Here are some valuable tips:
- Create detailed and accurate invoices. Make sure dates and descriptions of work done aren’t vague or incomplete.
- Use invoice tracking features in your software. Don’t trust your memory.
- Send invoices quickly. The longer you wait, the longer you go unpaid.
- Follow-up on unpaid invoices. If someone owes you money, they may just need a kind reminder. Don’t be afraid to let them know when a payment is overdue.
Tracking Expenses to Understand Net Revenue
Once you have a good handle on your revenue, it is important that you also track expenses accurately to give you a solid understanding of your company’s financial health. Give expenses individual categories and be sure to record every transaction as soon as they happen.
(We did an article for the construction industry titled “Finding the Best Receipt Tracking App” that can help any small business get started.)
Using Financial Reports for Revenue Analysis
After you are successfully tracking all of your revenue and expenses, you’re in a great position to begin using financial reports to analyze your revenue trends. We recommend generating the following reports on a monthly and annual basis:
- Income Statement
- Balance Sheet
- Cash Flow Statement
Identifying patterns in your income and expenses will help you make better data-driven decisions and run a much more streamlined business.
Read more here: “3 Most Important Types of Financial Statements Your Business Needs.”
And here: “How to Find Revenue In Financial Statements…And Use It To Your Advantage.”
Reconciliation and Accuracy Checks
When you get monthly bank statements, be sure that you or whoever is responsible for your company’s accounting takes the time to reconcile your records with theirs. If you find any discrepancies, it is much easier to fix them soon after they happen instead of trying to remember something from a year ago. Conducting periodic reviews and audits of your financial records will further ensure data integrity and give you peace of mind.
Tax Implications and Reporting
When it comes to taxes, service-based businesses need to understand what their tax obligations are. Historically, sales tax has been applied to the purchase of physical items. However, in many states, it is also charged on top of services as well.
In some cases, you may sell products or equipment along with your services. How you apply sales tax laws is often determined by whether or not your service is your primary offering or an incidental part of the sale of an item.
Because reporting revenue accurately for tax purposes is important, be sure to work closely with your CPA to make sure you stay compliant and avoid unnecessary headaches.
Consulting with Financial Professionals
Speaking of which, there are multiple benefits to hiring a good bookkeeper or accountant for your business. (Covered in detail in this post: “7 Ways Outsourced Bookkeeping Can Improve Your Operations.”)
- Cost savings
- Time savings
- Fewer errors
- Flexible services
- Improved operational efficiency
- Maximized productivity
- Enhanced business efficiency
You may not need (or be able to afford) someone in a full-time staff role, and there are many ways to outsource those tasks.
For help choosing the right financial professional for your business or knowing when to seek professional advice for complex revenue-tracking issues, give us a call. Our team has been serving small business owners for over 40 years, and we’d love to help you too.
Read more: “Why Outsourced Bookkeeping Services Are A Big Key To Your Business Success.”
Leveraging Technology and Automation
Modern technology has also made it easier than ever to automate your revenue-tracking processes. By using tools like payment processors, CRM systems, and other accounting integrations you automatically enhance your accuracy and efficiency. Plus, you can then spend your time delivering excellent service and growing your business instead.
The key to successfully leveraging technology and automation, however, is staying up-to-date as advancements come along. Be sure you’re running regular updates and taking full advantage of whichever tools you use.
You Can Do It! We Can Help.
To accurately track your annual business revenue make sure you
- understand the value of having that information
- pay careful attention when tracking multiple income sources
- track all of your expenses
- utilize reports to help you make better decisions
- consult with good financial professionals
There are a lot of good tools and best practices available that can make tracking revenue for your service-based business easier. The key is to regularly review and refine your processes for continuous improvement.
We’ve been in the business of helping people just like you grow their businesses for over 40 years. Schedule a call today to find out how our team can be the accounting partner you’ve been looking for.
