How to Calculate Annual Revenue

The first step in determining how your business is expanding is to know your annual income.

The financial health of a business is determined by many factors. Yet, a great place to start is by being aware of how much money you’re making from the products and services you sell. Without knowing annual sales, you cannot determine whether your company is expanding or declining, nor can you determine whether it has healthy profit margins.

Here are some things business owners and entrepreneurs should know about determining their annual revenue.

What is annual revenue?

The amount of money a business earns through the sale of goods and services over the course of a particular year is referred to as annual revenue. Before any reductions for the cost of the goods you sold or business expenses, annual income is the sum of all sales. Yearly revenue is frequently referred to as “sales” on income statements (also known as profit and loss statements) or “gross receipts or sales” on your business tax form (Schedule C if you’re a sole proprietor).

The difference between revenue and net profit is crucial:

• Revenue is how much money your business takes in.
• Net profit is the amount you have left over after expenses.

How to calculate annual revenue

The records you keep for the year and the type of income you receive will determine the appropriate approach for calculating annual revenue for you:

• Using accounting software: If you use accounting software or a bookkeeping service, you can find your annual revenue on your financial statements or tax return, usually on the top line. It’s generally called “gross receipts or sales” or “sales and revenue.”
• Using sales logs: If you own a retail establishment or other business that makes many small sales daily, you should have a sales log that shows daily cash, check and card receipts. Add your daily sales to determine your revenue for the year.
• Using paid invoices: If you have fewer, large sales — for example, if you design websites or install new kitchens — look at your paid invoices for each client.
• Using bank deposits: Another way to calculate or double-check your annual revenue is to look at your bank deposits. Assuming you deposit all sales proceeds in the bank, your total deposits from business operations during the year equal your annual revenue if you use cash accounting, which most small businesses use. Be sure to deduct any deposits from sources other than revenue, such as loan proceeds or transfers from other accounts.

How gross annual revenue differs from net business income

Your annual income is only one factor to consider when determining how profitable your company is. You need to be aware of your remaining finances after expenses.

As an example, let’s say your gross annual sales is $275,000 and you sell project management software. Next, you’ll look at expenses:

Understanding your gross annual revenue and how it varies from year to year enables you to assess the expansion of your company.

But, in order to operate a prosperous business, you must give your expenses the same amount of consideration as your net business income. If not, a company may continue to make more money yet have little to no net income remaining. If your operations cost you more than you make, your net business income could be negative. A business that continuously has costs higher than revenue is more likely to collapse.

Operating revenue vs. nonoperating revenue

You should be aware of your annual gross revenue from other sources, also referred to as “nonoperating revenue,” in addition to your operating revenue from your main firm.

Operating revenue

Operating revenue is the money generated by your business’s main endeavor, such as sales. All software sales in the example of project management software count as operating revenue.

Nonoperating revenue

The money your business makes from non-sales activities is known as nonoperating revenue. This category of revenue may include:

• Asset and capital sales: If you sell a machine you no longer use, the sales price is part of your annual nonoperating revenue.
• Dividend revenue: If your company invests in shares of another company, profits from this investment are dividend revenue and are nonoperating revenue.
• Interest revenue: If your company offers a loan with interest payments, carries a balance in an interest-bearing savings account or invests in the stock market, any interest income is nonoperating revenue.
• Rent income: If you rent property or lease equipment to another party, any income is included in nonoperating revenue, unless you’re in the rental business.

Track your revenue throughout the year

You must assess your company’s financial health more frequently than once a year in order to make wise business decisions and fulfill your expected tax obligations. Estimating your net income and gross revenue on a quarterly basis may be all you need to keep on track if you operate a one-person business.

You should pay closer attention to managing your company’s finances if you have a larger operation with employees. You should at least be aware of the monthly revenue generated by your company. Making the right decisions for your business throughout the year requires understanding how your revenue is changing and whether your company is earning a net profit.

Knowing your annual revenue helps put you in control

Because of the complexity of the business climate today, you must choose to adapt and develop swiftly in order to survive. Being aware of your gross sales and net income figures, as well as what they indicate about your firm, is a crucial first step in taking charge of your enterprise and achieving your financial and professional objectives.

Contact MCDA CCG, Inc today with any questions about your business!