Tales abound of business owners who get run out of business despite making sales after sales. Maybe the million dollar question should be, what is your revenue? Instead of “are you making any sales?”
Cashflow is the bloodline of any business, and how long you last in business will depend on how much cash you have flowing in and out.
So what constitutes real revenue?
In layman terms, we would say real revenue is “cash in hand”. Most business owners tend to think that their total sales and their real revenue are one and the same. This is pretty basic, but I like to say that real revenue is the money you actually get paid.
What does this mean?
If you sell 5 products, and only receive actual payments for two, then the payment for the two units is your real revenue. My definition for revenue is money in hand. Sometimes small business owners are so eager to make entry into the market that they sell some of their products (digital or physical) on credit and still want to regard the funds not received as revenue.
This is not true.
No business can survive without cash flow, so the sooner you understand that your real revenue is only the money you received, the better. Promised payment is not yet revenue and if you check out stories and experiences around, you will see small businesses that have been run to the ground due to this reason.
You can be doing a million dollars a month in sales and go bankrupt if all of the sales do not translate into real revenue. Revenue generally refers to all cash-inflows (before factoring in expenses), so if you are counting promised payments or pending receivables as revenue, you are misrepresenting your numbers.
Next question is “is there such a thing as fake revenue?”
No. If you are yet to receive the cash, then it is best classified with your pending receivables. The payment you expect to receive for an executed sale or transaction may be tagged pending settlement or receivables, but certainly not revenue.
Armed with this knowledge, you may need to re-evaluate your business financials to see what your real revenue is, and whether you are running a sustainable business model.
