Understanding revenue and cost are the two most important factors when dealing with gross profit and net income.  To successfully operate a small business, an organization must know how it’s receiving payments as well as handling expenses.  For this article we will take a look at income.

There are a number of ways to collect revenue, but the most popular are through cash, and credit cards.  When dealing in business to business scenarios, other popular revenue sources include Direct Deposits (money sent directly to your business account via electronic transfer) and merchant accounts (“credit arrangements with clients and suppliers for clients to pay by a specific date”).  Businesses may also accept checks and  extend credit lines to customers if they need additional time to pay for a product or service.  

In addition, payment terms are also necessary when dealing with a business to business relationship.  30, 45, and 90 day pay terms are normal and define a date when payment is due.  Unfortunately it is not uncommon for clients to pay suppliers late despite the pay term agreement so be aware when performing larger projects, specifically in the construction, manufacturing and engineering sectors.

Understanding income is critical and the first step to learning how to run a successful small business.  Keep these definitions in mind when growing and operating your organization.