Revenue vs. Cash Flow: Which One Should You Prioritize?

cash flow

If you operate a business, there are multiple ways to look at your company’s financial situation and overall health. Revenue and cash flow can both provide important information that can influence your decision-making processes.

What Is Revenue?

Revenue represents a company’s total income before expenses are deducted. Revenue includes income that a business generates through the sale of goods or services, plus income generated from other activities. For example, revenue can include money that a company earns from investments or interest on bank accounts.

Revenue can be broken down and reported in a variety of ways, depending on the type of business and the way it operates. Revenue may be recognized at different times under different circumstances. For instance, sometimes a company receives payment before it delivers a product or service. At other times, it may provide a product or service and expect to be paid later.

What Is Cash Flow?

Cash flow is a measure of the amount of cash and other cash equivalents that a business receives and that it pays out to cover its bills and debts. The cash flow statement can include accounts receivable and payable, plus cash flow from operating, investing, and financing activities.

Cash flow is a way to assess a company’s ability to cover its obligations. While revenue may be recorded before or after payment is received, cash flow only counts money actually flowing in or out of a business.

Which Should Your Company Prioritize?

Both revenue and cash flow are important indicators of a company’s overall financial position. A business with high revenue is earning a lot of money from sales and other activities. If it’s spending a large percentage of those funds to cover debt payments, however, it may have negative cash flow, which can indicate that the company is in trouble. A business with positive cash flow may have a lot of money on hand, but if a large portion of that money came from taking out a loan and the company isn’t earning much from sales, it will have low revenue.

Prioritizing revenue is important, but your company needs to maintain adequate cash flow to cover its expenses. High sales figures won’t do your business much good in the long run if you’re spending so much on debt obligations that there is little leftover.

Get Professional Help with Accounting

Managing bookkeeping for a business of any size can be challenging if you don’t have the right training and experience. It can also be a time-consuming task that can keep you from focusing on growing your company.

DOAAR can help. We have a team of highly trained professionals who can assist you with bookkeeping and other financial services. Contact us today to learn more.