Sales, Receipts, Revenue What's the Difference?
In many CI companies Sales and Receipts and Revenues are recorded as a single event. While this would be true if you were selling hot dogs from a food truck, this is not the way most CI companies conduct business.
Sales and Receipts and Revenues are different events that happen at different times and in different amounts. To wit…
SALES occur when a client agrees to a proposal made by the integrator. This could be a verbal agreement, or a signed agreement. In either event, a SALE is an agreement for the integrator to deliver, across a future time frame, the specific technology solutions outlined and priced in the proposal. Because no goods or services are typically provided at the time of the SALE, it is a financial non-event.
Of course, from a sales management perspective, a month-to-month sale written is an important number to count and manage. SALES set the stage for future collection and production.
RECEIPTS are client payments received by the integrator. In the best case, the first payment is made at the time of SALE, sometimes in the full amount of the SALE but usually something less than 100% of the SALE amount. RECEIPTS can occur in varying amounts prior to and/or during and/or following the delivery of goods and services (production).
A common mistake is to count RECEIPTS as an income event. They are not. RECEIPTS are a collection event recorded on the Balance Sheet. It is good management to make collection requests on a timely basis so that 90-95% of the project price is forward-funded by monies received prior to actually doing the work.
REVENUES come from the daily value of the goods and services delivered to projects. We call this Production. Production-based REVENUE recognition allows management to readily count and measure work produced (income) against the very costs they are incurring to get the work done: people, goods, and expenses.
Note that the majority of costs in a CI company are there to enable Production. By measuring costs and income in the same accounting period, the Income Statement (P&L) becomes an accurate reflection of company productivity and efficiency. You can see some of the most important measures from a good P&L at www.bi4ci.com.
A word of caution: any shortage in any one of these three areas can really slow your performance. The important message is treat these three things as separate and independent management concerns, and to know who is responsible for each.
For a graphic view of how this process looks in QuickBooks, download our Process Flowchart by clicking here.