As an entrepreneur, you have a galaxy of concerns when you start your business. You could be forgiven for not correctly calculating your sales as revenue, because a lot of small businesses and startups do the same thing.
Yet according to Open Forum, that’s the biggest mistake made by entrepreneurs, and one every one of them should try to correct.
I’ll let writer Mike Michalowicz explain:
Let’s say you make a sale for $1,000 and the company sends you the check all at once. Great! But let’s go a step further to say that the amount was for work that will take place over the next 10 months during 10 consultative meetings, which actually would come to $100 of revenue per month. Do you log the whole $1,000 as immediate revenue even though you haven’t actually delivered the goods or services yet?
If you said yes, then you are guilty of committing the biggest accounting mistake.
So what’s the big deal? According to Michalowicz, you should never apply a sale as revenue until youv’e delivered the goods. You should also not, if you’re due $1,000, log anything more than the monthly payments you’re getting as income. You risk throwing off your books, or worse, coming up short on funds when you need them because you’ve been calculating things wrong for months.
The key is to be patient and keep a careful eye on your books. Record income as it comes in, keep your financial house in order and you’ll avoid some of the pitfalls other entrepreneurs have discovered. Lord knows you’ve got enough to worry about without having mistakes in your books.
Has this been a problem for you and your business, and is this article helpful? Let us know!
Photo credit to forwardcom at http://www.sxc.hu/photo/911375