It’s tempting to want everything to seem equal all the time, you know?
It simplifies things.
It sounds easier.
“All opportunities are equal.”
“Cash all spends the same.”
The truth is however – this is rarely true. And especially when it comes to your incoming revenue.
If you’ve heard our Boardroom Buzz podcast, you’ve likely heard us talk about “revenue inequality” or the idea that not all revenues are created equal. (If you haven’t heard the podcast, “where are you at??” )
Your business sells quarterly pest control subscriptions for $100 and rodent bait stations for $100. it might seem like you’re earning the same revenue. But it’s not true.
You know where we are headed, right? The subscription promises $100 recurring into the future, representing a known future cash flow 💰. The bait station sale is a one-time transaction with no guarantee of recurrence, making it an unknown future cash flow. But when this distinction really matters is when you (or an appraiser) are analyzing your business, the subscription revenue is significantly more valuable because instead of just money today in your hand, it’s money tomorrow and next month.
But the place where this little super-power of recurring revenue gets unlocked is in your financial records. If your revenue records are a jumbled mess, you won’t have a clear vision as to what’s recurring, what’s one-time, what’s pest control, what’s mosquito control, and so forth. This lack of clarity can kill your ability to make strategic decisions – regardless of whether you’re building a legacy business for your family or an asset you want to sell later.
One of our FRAXN clients was contemplating diversifying into wildlife control but was unsure of the potential revenue. Was there enough cash there to justify all the work to expand? By adopting our gold standard chart of accounts and leveraging our team to handle his bookkeeping, which includes wildlife as a subcategory, we were able to show him his monthly earnings from wildlife control and make an informed decision.
(It is currently working out great for him, by the way.)
This would have been impossible previously, because he lacked the visibility to make sense out of the potential, with only ONE revenue line item.
It is very possible to have an overabundance of revenue accounts. If you are a business that has a separate account for each service offering plan, be it gold, silver, or bronze, and for each frequency like bimonthly or quarterly. You can overcomplicate yourself into the same confusion and obscure the overall picture of your recurring revenue.
At FRAXN, we’ve developed a gold standard chart of accounts for the pest control industry. This industry-specific chart takes the best from both finance and business worlds, considering what analysts and industry experts want to see. (As well as just providing plain sanity for you, the owner.)
Our chart of accounts distinctly breaks down your revenue, clearly highlighting what’s recurring, what’s one-time, and categorizes each revenue stream by the type of service (pest control, termite, mosquito, bedbug, etc).
This organized approach enables you to quickly analyze and understand the characteristics of each revenue stream, allowing you to make more informed business decisions, focus your efforts efficiently, and identify potential cross-selling opportunities.
It’s one of our favorite examples, but it’s like in the movie Moneyball where Billy Beane (GM of Oakland A’s) used statistical analysis to see value beneath the surface of his team to know where to invest and then went on to make the greatest winning streak in baseball history.
Your business right now has the same kind of value running beneath the surface – and a properly organized chart of accounts with smart revenue lines is step one to seeing and understanding that value (and putting you on a winning streak). Want a free review of your chart of accounts?
(Book a time below. It’s so easy we saved you a click…)
The power of understanding revenue inequality is enormous. Even if you’re not looking to sell or maximize the value for a sales price, there is major value to be gained by clearly separating out your revenue accounts. The insights you gain will be instrumental in steering your business to greater success.