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What Businesses Need to Use Real Revenue

Real revenue is a bookkeeping category that businesses should use if they have substantial expenses from materials or subcontractors. Folks in construction trades from builders to plumbers, electricians, and brick and cement workers all need to consider this approach. The problem that many of these businesses face is the fact that much of their business is managing costs equal to or greater than their own work. First, we have an example and then some thoughts about how businesses using subcontractors and materials can realize profits.

Bob the Electrical Contractor

Our hypothetical electrical contractor in the Kansas City area, Bob, has a total income each year of $150,000. And he subcontracts work to the tune of $40,000. Plus materials cost $45,000.

So, if we apply the real revenue approach to Bob’s total income we get this.


Minus $40,000 (subcontractors)

Minus $45,000 (materials)

Equals $65,000

So, Bob has a $65,000 business and not a $150,000 electrical contracting business. What he does is manage $85,000 in materials and labor which is in excess of the rest of his business.

But, does Bob take home $65,000 minus taxes? The answer is no.

These are Bob’s other costs of doing business.

Administration, $14,000

Cost of Vehicles, $13,000

Rent, $9,000

Taxes, $3,500

Take home pay, $25,500

However, the average wage for a journeyman electrician in the Kansas City area is $26.85 an hour. This comes out to $1,074 a week and $53,700 gross pay for a fifty week year.

Considering that the union job may well include health benefits and even a 404(k) for matching retirement savings, Bob could be doing better as an employee, albeit a union electrician.

How can Bob fix this situation?

First of All, Bob Needs to Use Real Revenue

The materials that Bob uses and the subcontractors that he pays account for more than the rest of his income and expenses. Bob need to separate this out by subtracting materials and subcontractors from his total income. Then he needs to take a long and hard look at the jobs he is taking, what he pays for materials, and who he is paying to do subcontracting. All too often people with great skills in their trade do not have great bookkeeping, accounting, or business skills. Bob needs to sit down with the Profit First Professionals at Exigo Business Solutions.

The greatest advantage of the Profit First method is not taking a profit off the top. It is getting your financial house in order. When you identify the “elephant in the living room” such as subcontractor and materials expenses that are eating up profits you can start to deal with the situation. Using small business tools like QuickBooks and its Custom Reports, a business owner can spot problems and take action. If you have a situation similar to this one, contact the Profit First Professionals in the Kansas City area, Exigo Business Solutions and get back on the path to business profits.

If you still have questions or are interested in implementing Profit First in your business, visit our website, ExigoBusiness.com, or contact us at (816) 394-6818.

Click here to watch the YouTube video about what businesses need to use real revenue.

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Profit First Strategies helps business owners experience profit.

Profit First Strategies

Profit First is a system that helps you produce profits in your business the first month and always. Using this approach to running a small business you can make profit a habit and not a remote possibility. The Profit First approach starts by rewriting the usual bookkeeping formula so that profit is taken and put in the bank with every bookkeeping cycle. The system follows through by instilling discipline in your budgeting and cash flow management. Read our articles to learn the basics of Profit First and Profit First Strategies that you can use this approach to make you business more successful and your business life more efficient and easier.
Profit First helps you experience profit.

Ronald B. Allen
CEO, Profit First Professional, Fix This Next Founding Advisor
Principle of an accounting firm that’s committed to educating business owners on their financial health, providing a trans-formative strategy and helping them experience their profit!