Measuring revenue can help you avoid financial problems, take advantage of business opportunities, spot trends, predict future peaks and valleys and provide a variety of other analytical information to help with strategic management of your business. Your revenue measurements should go beyond gross receipts, identifying where and when you are generating money.
Tracking your revenue on a regular basis helps you identify where your revenue is coming from throughout the year. This will alert you to any problems if a revenue-producing product or service begins to perform poorly. For example, if you lose a large customer who buys seasonally, you can quickly determine what will happen to your budget during those seasonal periods. If you see that one area of your product line is generating an increasing share of your revenue, you can increase production and marketing of that product while de-emphasizing products that produce less revenue. Knowing how your revenue is produced lets you better schedule labor and production to meet demands for each of your products.
It’s important to identify revenue timing to help determine your cash flow throughout the year. This will help you set more effective spending levels, helping you decide when to make large capital investments, pay down debt or arrange for additional credit. If you see that revenue will be slow for a month or more, you can arrange for additional credit to fund your operations and purchase materials and supplies to continue producing your product.
Budgets are best guesses of future performance, aided by recent marketplace analyses and historic trends. Measuring your revenue by week or month helps you graph trends during the course of one or more years, allowing you to make better budgeting predictions. The more accurate your budgets, the less likely you will run into temporary deficits or get into short-term cash squeezes.
Depending on how your business is structured, you might need to pay quarterly sales, payroll and income taxes. If you offer employee benefits, you might need to make employer contributions to retirement plans at specified times during the year. Knowing how much income you’ll have and when it will arrive will help you project your financial obligations, reserve funds to pay them and avoid penalties and fines. In addition to tax and benefits obligations, you might have debt payments you can’t afford to miss. Doing so might cause you to lose access to credit, experience a significant increase in your interest rates -- if you are using a credit card to run your business and miss a payment, for example -- and damage your credit score.
