To manage your company’s finances effectively, you’ll need to understand the idea of Revenue and Profit, which will help determine financial standing, and consequently, budget and investment decisions. In short, Revenue is a company’s top-line growth, situated at the top of the financial statement reflecting gross sales and gross income. The revenue number is the income a company generates before any expenses are subtracted. Profit is net income, which is what remains of Revenue after all pertinent expenses are substracted, and commonly referred to as the bottom line. The financial statements that your accounting service in Malaysia prepares for your company annually will clearly reflect these two figures.
Accounting Service in Malaysia
Even though your Malaysia Accounting Firm takes care of your income and financial statements for annual compliance, you may not fully understand what has been itemized or differentiate between terms such as revenue, profits, income and such. Understanding the difference between Revenue and Profit means you will not mistakenly spend the money on something without saving enough to cover bills that are due, which is not an uncommon problem with tax bills or the cost of inventory management.
Revenue is externally dependent:
Your business revenue depends on your customer base and their willingness and frequency of paying for your product or service. Even though internally you can strategise to help increase income, but revenue is, more or less, highly dependent on external forces.
Profit is internally dependent:
Profit, on the other hand, depends on internal forces. Operating expenses, which you need to cover using your revenue, are, to a large degree, within your control as a business operator. You may decide to streamline production, slash overhead costs or limit labor expenses, for example, to reduce the amount you have to subtract from revenue to increase your profit.
Revenue presedes Profit
Profit is entirely dependent on revenue. Without income from goods or services, profit cannot be generated. By the same logic, your business can generate revenue but not be profitable, i.e. suffer a net loss, because your expenses exceed your income.
Before making any important financial decisions, you should consult with the accountants at your Malaysia Accounting Firm about the financial health of your company, asking them to clarify what has been itemised (such as Revenue and Profit) on the various statements they prepare. This financial strategy is essential to ensure that you have the cash flow to pay for future capital expenditures, payroll, or an upcoming tax bill.