This is the second part of the Accounting principles and procedures that I am covering for one of the mandatory RICS competencies for Land Surveying (Geomatics) and Quantity Surveying. The first part covers capital, revenue expenditure, and taxation.
Revenue & Capital Expenditure
Revenue expenditure is the money that you spend on things that bring in revenue. It's the opposite of capital expenditure (capex), which is money spent on assets that don't provide a return.
For example, if you're running a restaurant, your revenue expenditure would include things like paying employees, buying ingredients for food and beverages, and renting space for your business. If you're running a factory, it might be things like buying machinery and paying workers' salaries.
The difference between revenue expenditures and capital expenditures lies in whether or not they contribute towards the creation of an asset. Revenue expenditures are typically short-term expenses that are meant to increase profits by increasing customer satisfaction or sales volume—for example, buying new uniforms for your employees so they look nicer when serving customers. Capital expenditures are longer-term expenses—you might buy a building as part of your expansion plan.
Capital expenditure is one of the most important parts of your company's finances. It's how you invest in the future of your business: buying new equipment or buildings, upgrading existing equipment, and so on.
Capital expenditure is different from revenue because it's not directly related to sales; it's a fixed amount that needs to be paid out regardless of whether or not you sell anything. If you don't have enough capital expenditure, your business will struggle to expand and grow, which can lead to lower revenues and profits in the future.
In summary, the Capital expenditure is the indirect cost to manufacture your goods, the Renveue expenditure is direct cost to manufacture the goods.
In construction, Revenue Expenditure can be:
- Labour
- Plant
- Equipment
- Subcontractor
- Prelim (related to the works)
In construction, Capital Expenditure can be:
- Your offices
- Your marketing budget
- Your head office
Cashflow
Cashflow is the movement of money into and out of your business. The goal of cashflow is to manage the flow of money in and out of your business so that you can pay your bills, cover expenses, and grow a business.
To calculate cashflow, you start by calculating how much revenue you received in a given period. i.e. from your applications, invoices. Then, you subtract how much you spent during that same period. i.e. material, equipment, subcontractor payment. This results in a number for net cashflow (aka "cash remaining").
Why is cashflow important? It's important because it helps you see how well your business is doing financially, which means it helps you make better decisions about where to invest time and money. For example: if you have a negative net cashflow for a period, then this probably means that more money went out than came in during that time period (and vice versa). This can help give you a sense of whether or not it would be wise to spend more on advertising, or maybe even hire someone else full-time so they could help with sales—but only if those things are actually necessary!
In construction, I work out the cashflow based on when my payments are going to be released from my clients. Usually 30days after my application for payment. I also calculate my outgoings by looking at how much invoices are due in a period.
I don't do it that often but it is something to be aware of for small projects, and companies.
