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E-Myth – “Why most small businesses don’t work & what to do about it”

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Accounting Outsourcing | Gross Revenue Versus Gross Margin

How many entrepreneurs get into the business that they are in because they are passionate about the industry says accounting Outsourcing. They might not have a lot of business ownership experience if any. And struggle with understanding the profitability of their business.

While this is an important thing that entrepreneurs need to calculate in order to help them increase their revenue and grow their business. I can be fairly easy for entrepreneurs to learn. As long as they know what they are looking for in their business.

The first thing that an entrepreneur should learn in order to help them understand their profitability. Is what gross revenue, net income, and gross margin are and why they need to know about those things says accounting Outsourcing.

The gross revenue is all of the money that the entrepreneur bills clients and to take some to their business. This is all of the money without subtracting any of their costs at this point. And is an important figure to know.

The net income on the other hand says accounting Outsourcing. Is all of the money that an entrepreneur gets to keep after all expenses both direct and overhead has been paid.

Finally, the gross margin of the business is all of the revenue that the entrepreneur brings into their business, minus the direct costs only. The direct costs are all of the costs associated with producing their product or service. Including materials, and labor. No matter how the labor was paid for. Whether it was a payroll or a hired contractor.

One mistake that many entrepreneurs make, is thinking that if they simply make more money than it takes to produce their products or services. That they are going to profit. And this is not true says accounting Outsourcing. Simply because an entrepreneur still has to pay their overhead expenses from that amount. Which can be quite significant.

Therefore, an entrepreneur needs to understand net income, because that figure is going to be how much profits they get to keep and utilize to grow their business. But without understanding gross revenue, net income, and gross margin. Might be difficult for entrepreneurs who don’t have an accounting background to understand.

The reason why these are important to calculate. Is so that’s an entrepreneur can figure out approximately how much money they are going to make for every customer that walks through the door of their business. While accounting Outsourcing says business owners try to figure out the profit on every single product and service they sell.

That could end up being a lot of work. And doesn’t truly help an entrepreneur understand the profitability of their business. However, if they can average their transactions out. And calculate approximately how much money they make per customer do their doors says accounting Outsourcing. They will be able to understand how many customers they need to increase the revenue and meet important financial goals Within their business.

Gross Revenue Can Be Totaled With Accounting Outsourcing

There are so many different things that an entrepreneur needs to learn as soon as they open the doors to their business says accounting Outsourcing. And understanding their profitability is one of those things that continue to domestic business owners. And while it can be very easy for some entrepreneurs to learn. The fact that they have to learn that while operating their business for the first time can make it an overwhelming task.

Once an entrepreneur understands how much money they are making per transaction. They’re going to be able to multiply that and scale it up to figure out how many transactions they need and their business in order to stay viable first. And then reach the importance of financial goals next.

Rather than trying to calculate the profitability for every single product or service that an entrepreneur might have. They should instead start to group similar transactions and products together. So that they can get an average says accounting Outsourcing.

For example, a fast-food restaurant might have an enormous amount of very small items on their menu. Such as Fry’s in three different sizes, onion rings in two different sizes, and Fountain Pops in six different sizes. Just to name a few. Add in the burgers and the side dishes in the various sizes. And it can add up to a menu full of hundreds of items.

An entrepreneur does not need to know exactly how much profitability every single order french fries, onion rings or hamburgers they make. But what is an important figure to get two? Is approximately how much money they’re going to make on every customer that walks through the door of their business.

This is why creating an average is so powerful. Not only does it take less time for a business owner to calculate. But it can be far more meaningful. Instead of an entrepreneur thinking in terms of how many orders of french fries, onion rings and hamburgers they need to sell. They simply need to figure out how many customers should walk through the door of their business.

That is extremely helpful when they are figuring out their marketing. If they know how much money they make per customer. They will know how much money they can spend to gain those customers and still profit in their business according to accounting outsourcing.

Therefore, a business owner can simply group together action types in order to create this average says accounting Outsourcing. For example, a fast-food restaurant might include all of the food in their restaurant under one transaction type. But they might also have a food truck that goes out to events. And that might have completely different profitability which requires its own transaction type.

When business owners start to gain an understanding of how to calculate the prophets in their business. They will be able to more effectively influence the profitability on a day-to-day basis. By increasing prices, advertising their business, or managing their direct costs. All of these things will work together to help an entrepreneur succeed by making the money they need.