Keeping on top of your financial accounting can help you understand and improve your business performance when you run a small business. More specifically, understanding your revenue can help you track how much you’re earning and where from. So, although it’s good to know how to calculate your revenue in accounting, you may be wondering how to get started.
This guide will cover how to calculate revenue in accounting, including:
- What is revenue?
- Why does revenue matter?
- How can you calculate your small business revenue?
What is revenue?
Revenue is the total amount of money or income a business earns through selling its products and services over a given time. This is the income before you subtract the taxes and expenses of a business. You’d usually record revenue based on transactions completed by the customer, or your turnover.
Calculating revenue is the first step in forming a business’s income statement for accounting, which is the total earnings and expenses over a given time. By subtracting your overall expenses from your revenue, you can determine your net profit or the total amount of money you earn from your business.
Why does revenue matter?
The amount of revenue you bring into your business is a key indicator of how much you earn from your products and services, showing your profitability. This figure can show how well your business is performing and help you plan for growth with excess cash.
Knowing how to calculate revenue in financial accounting is also important because you’ll need it for tax purposes. This is because small businesses have to pay income taxes. So, calculating accurate revenue will help create your income statement to report to the HMRC and determine how much you owe.
You can also compare your revenue to your expenses. This contrast will help you know if you spend too much for your business compared to what you earn. With this information, you can decide when to cut down on expenses or increase your prices to earn more.
How can you calculate your small business revenue?
Once you understand why it matters, you can learn how to calculate revenue in accounting. We’ll outline the best ways to get an accurate number.
To calculate your small business revenue, multiply the cost of your products or services by your number of sales. Here, rou can either calculate your gross or net revenue. Your gross revenue includes all earnings based on the price of goods, whereas your net revenue factors in discounts and sales. This means your gross revenue is the cost before discounts applied whereas net revenue shows your real takings.
Organising your finances
Calculating revenue may seem simple, but you’ll need to keep updated records of your business sales. A good way to start organising your finances is by creating a business current account, which separates your business finances from your personal ones. Dividing these finances will help with your bookkeeping, or the process of recording and reporting your financial data.
Accounting software can help you organise your finances well and save time with bookkeeping. Countingup offers a business account and accounting software in one app, which helps keep all of your financial data in one place.
With the app, you can easily create and process invoices on the go. Countingup can notify you when these invoices are received and automatically match them to payments. This way, you’ll know when you earn revenue from your services.
Considering other revenue
Once you have your sales organised and updated, you can learn how to calculate revenue in accounting. Adding up your sales will help you find your revenue. So, start by outlining your products or services list to see what you’ll need to calculate.
For example, if you’re a hairdresser, you may offer haircuts, blow outs, and hair dying. Each service will cost different amounts, so create a list with corresponding prices. You can then look at your invoices to determine how much of each service you sold.
You may also need to consider other forms of revenue besides your products and services. For example, maybe you monetised Youtube content or a blog. You may have also sold special products or participated in partnerships. These other forms of revenue may not be direct earnings from your products and services, but you can still include them.
If you’re calculating net revenue, be sure to pull information on any sales or discounts you offered clients. You can then reduce these from the typical price of sales.
Tools for calculating revenue
Accounting software can make it easier to calculate your revenue and understand how your business is doing. Apps like Countingup do more than put all of your finances in one place to increase transparency. They also offer tools to help you understand your money better and save you time so you can focus on your daily operations.
With the Countingup app, you can keep organised recordings of your finances efficiently and avoid manual data entry. This can help you find business earnings to calculate your revenue easily. Even more, the app generates cash flow insights so you can see how much cash you bring in and out at any given time and how you can improve it.
Plus, Countingup lets you share your financial information with your accountant so they can accurately file your taxes using your calculated revenue and expenses.
Manage your financial accounting with Countingup
The Countingup business account comes with free accounting software that helps thousands of small businesses keep on top of their financial management. Designed specifically for one-person businesses, this unique two-in-one app makes running your business much easier.
Keep your business finances running like clockwork. Download the Countingup app today.