Sales Revenue Doesn’t Mean Anything If You Aren’t Collecting Money

  • Home
  • /
  • Blog
  • /
  • Sales Revenue Doesn’t Mean Anything If You Aren’t Collecting Money

A lot of people aren’t comfortable talking about money, they're not comfortable handling money, and they're certainly not comfortable making it a priority in their business...

Which is crazy as a business owner!

Speed to cash is everything in business – and the reality is, that revenue doesn’t mean anything if cash isn’t hitting your bank account…

You actually have to prioritise money, and you have to make sure you're actually collecting it!

Let's run through an example of why this is so important...

On average in business, 5-15% of revenue goes uncollected every single year!

Now actually think about that for a second… because that’s A LOT tonne of money!

Let’s say you do $1,000,000 in sales, and just 5% of that goes uncollected.

5% of $1,000,000 is $50,000.

Now, you might be thinking, ‘well what’s $50,000 in comparison to $1,000,000? Right? This doesn’t seem like a whole lot of money… you know… I can live with that’.

But let’s break it down.

Say you have a gross profit margin of 25%.

This means that $250,000 of that $1,000,000 should be your gross profit.

But because of the lost $50,000 worth of sales, your gross profit is actually only $200,000…

Suddenly that uncollected $50,000 seems like a lot of money, right?

Especially considering that this 5% of uncollected sales is the equivalent of 20% of your entire gross profit.

To make up for that lost $50,000, you’re going to need an additional $200,000 worth of sales – just to get your gross profit back…

And that is a serious number of additional sales that you wouldn’t have needed in the first place…

Which is crazy!

So this means that you have to not only be invoicing, but actually making sure the money hits your bank account!!

This means staying on top of your accounts receivables and following up with the people who owe your business money....

Because even a small percentage of uncollected sales WILL literally destroy your gross profit - and ultimately your take home net profit!

Sales doesn't mean sh*t if you aren't collecting cash.


If you're an electrician, plumber, painter, carpenter, or any other trade business owner who is looking for an accountant who actually cares about your business - click here to learn more!


Tags


Bayley Peachey | Accountant & Client Advisor

About the author

As an accountant with a background in construction, Bayley has specialist experience advising trade businesses anywhere from start-up to $20M+, helping clients to simplify financial management...


GET IN TOUCH

Book Your Free Consultation