Value Creating Activities

We frequently emphasize what Revenue is NOT in these weekly messages. Today I would like to define what Revenue (or Sales) actually IS.

Revenue is how we account for the activities the business engages in which create value. Revenue is the activity itself, not the money which will eventually come from it.

Of the five types of accounts we all work with every day (Revenue, Expenses, Assets, Liabilities and Equity) Revenue and Expenses are the only ones that are activities. And Revenue is the only Value Creating Activity.

And, while generating Revenue creates value, it may not directly put cash in the bank. It generally only creates the promise that some cash may appear in our bank account at some later date.

The difference between those two events - and the amount of time which separates them - causes more disruption within individual businesses than any other misconception we deal with.

Don't get me wrong. I strongly encourage you to generate as much revenue as you can - within the constraints of your cash flow!

Warm Regards, Peter