I love being able to pull useful business advice from financial records and reports.
However, the trick to getting good reports is making sure that the data is organized correctly. One recurring problem I see that muddies the waters is a lack of division between operating revenue and non-operating revenue.
Let’s take a quick second to clarify what revenue is and isn’t:
It’s the number on the tip-top of your P+L report
It doesn’t factor in your expenses
And it’s not the same thing as profit (Profit = Revenue - Expenses)
Essentially, “revenue” is the word we use for talking about all the money coming in the door.
But it isn’t as simple as “just” client payments.
From there, revenue gets broken down into two types: the operating and the non-operating (or “other”) type.
Operating revenue comes from the regular money-making activities of your business; and non-operating revenue is pretty much the opposite - money that came from irregular or infrequent activities that aren’t core to your business. (Can you see how that might matter for future business strategies?)
Pretty straight-forward, but just for abundant clarity, here’s a few examples of both:
Operating Revenue:
Sales of goods and/or services
3rd parties Licensing or Hosting
Interest earned on loans issued, late fees charged
Non-operating (“other”) Revenue:
Interest earned by your bank account
Interest earned on company investments
Lawsuit proceeds
Rent revenue (if you aren’t a landlord)
Sale of an asset (like a building)
Maybe you look at your reports and your third quarter revenue was off the charts. You may start to get excited, trying to figure out how to replicate that success - until you realize that was the month you finally sold the old company building. It was an anomaly that had nothing to do with your day-to-day business activities.
Keeping non-operating revenue separate from your operating revenue is vital for strategic forecasting - if you want to make smart predictions and changes on your sales strategy for next year, you need to make sure you only factor in the money that comes from your operating revenue.
You still need to track the non-operating revenue (of course), but keeping it separate will really increase the accuracy and helpfulness of the rest of your financial reports.
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