Revenue, sales, turnover, profit. What does it all mean? And moreover, how can you view your financial results to make cents of the numbers (see what we did there!)? Clear Books accounting software asked their Chief Financial Officer to break it down.
Getting started with revenue
So, what is revenue? Revenue is not just the money you receive for the sales you make. Revenue is the financial benefit you receive from all of the activities of your business.
Trading revenue (the money you receive for selling goods or supplying services) is a major component of revenue, but it’s not everything. There are some other income sources you should consider when you calculate how much money your small business makes.
When calculating small business revenue, you should look at your trading income, as well as income from interest, dividends, royalties, rent (from leasing out premises or machinery to others), commissions, grants, and other one-offs like money from the sale of an asset, or the proceeds from a lawsuit.
Make an exhaustive list and add it all together. This figure will be your revenue.
Revenue is the same as turnover, sales or income
Small business financial management can seem confusing. Not in the least because people use different terms for the same thing. When looking at the money your small business makes, remember that revenue is the same thing as turnover, sales and income.
Don’t let the different terms confuse you. If HMRC or your bank asks what your turnover, sales or income is - you know they’re asking for your revenue numbers.
Revenue is the starting point to calculate your take home pay
Are you a small business owner, freelancer, contractor, or sole trader, trying to figure out how much to pay yourself? If so, you should start by calculating your revenue.
Once you know what your revenue is, then deduct your business expenses from your revenue to calculate your pre-tax profit. It’s a good idea to keep a sensible amount (maybe 20% or 30%) of this pre-tax profit aside in a separate bank account for tax time so you don’t get stung with a surprise tax bill at the end of the year. Your accountant will help you determine if some income isn’t going to be taxed, and also if some business expenses aren’t “allowable” to offset against your revenue. But 20% or 30% is a good rule of thumb to start.
Then decide how much of the remainder you wish to pay yourself, and how much you want to retain in your business account to fund day-to-day operations and special purchases.
There’s a way to make revenue calculation easy
Whether you run the numbers once a week or once a year, calculating your revenue, expenses, pre-tax profit and take home pay may seem overwhelming.
But don’t worry too much, there are a number of tools out there that help you to do it easily. Accounting software like Clear Books is one of these types of tools. Here’s how Clear Books works:
- Open a free Clear Books trial account
- Link your Revolut Business account to Clear Books
- View each bank transaction in Clear Books, classifying the money you receive as revenue, and the money you spend as different types of business expenses (e.g. a train ticket would be travel)
- Clear Books will automatically generate a ‘profit and loss’ report in Clear Books showing you how much pre-tax profit your small business has made
- You can then decide how much to set aside for tax, and how much to take home
Getting help when you need it
If you struggle with numbers, then consider getting some help. You can always speak to an accountant to find out more about calculating your small business revenue, or you can take advantage of Clear Books’ free phone and email support. Our experts will walk you through how to link your bank account and accounting software, how to classify your transactions, and how to view your profit and loss report.Sign up in minutes
- Turnover vs Revenue: do they mean the same thing?
- Revenue vs Profit: What is their Difference?
- Revenue vs Income
About David Carr
David Carr is the Chief Financial Officer of Clear Books accounting software. He’s a Chartered Accountant (read: highly qualified and on top of everything that involves numbers). He’s originally from New Zealand, but has adopted the UK as his new home.