As the year comes to a close, it is time to review your business's financial performance throughout the past twelve months. By examining your sales revenue report, you can identify which products or services have been most successful in driving revenue and recognize those that may not be performing as well as expected, perhaps due to decreased demand or pricing issues. This review process is essential for understanding your company's financial health. It can help you make informed decisions for growth in the upcoming year.
Tracking your sales revenue (operating and non-operating) and calculating it can be time-consuming and challenging. To gain deeper insight into sales revenue and how to accurately track and compute it at the end of the year, read this Huddle Business Capital blog article. You will find helpful information about business revenue.
What is annual business revenue?
As the phrase states, annual business revenue is the total amount of money your business generates over a year. You can calculate your yearly revenue for the calendar year, January 1 to December 31, or for a fiscal year, which can start and end on different dates. For example, some businesses begin their fiscal year in July and conclude in June of the following year. This flexibility allows companies to align their revenue calculations with business cycles and seasonal trends.
Operating and nonoperating revenue.
The two types of business revenue are operating and nonoperating revenue. Operating revenue, also known as sales revenue, is the income generated from your business's primary operations, such as selling products, providing services, or both. If you run a retail shop, your operating revenue would include all merchandise sales. If you run a service business (e.g., marketing, accounting, landscaping, hair salon), operating revenue is the amount collected for services rendered.
Nonoperating revenue is income your business generates from activities other than its primary operations. Some common types of nonoperating revenue include interest on business loans, interest earned on bank accounts, investment income, sales of equipment and assets, and income from renting office space to another business.
Calculating annual business revenue.
Your revenue will be near or at the top of your income statement, also known as the profit and loss (P&L) statement. Depending on the accounting spreadsheet, software, or accounting terms you use, "revenue" might be listed as "net revenue," "sales," or "net sales." Once you locate your company's revenue on your income statement, verify that all sources of income generated by your business are included in this total.
Using business accounting software, you can sort the past twelve months of data and generate an annual revenue report. If you don't use accounting software, you will need to review your spreadsheet and manually calculate your annual revenue. The formula for calculating revenue is to multiply the quantity of each product or service sold by its sales price.
Let us use a commercial vehicle vendor as an example. The vendor sold 120 commercial vehicles last year, 55 of which were priced at $56,000, 30 at $44,000, 20 at $39,000, and 15 at $30,000. So, the vendor's annual revenue per commercial vehicle type is as follows:
55 x $56,000 = $3,080,000
30 x $44,000 = $1,320,000
20 x $39,000 = $780,000
15 x $30,000 = $450,000
$3,080,000 + $1,320,000 + $780,000 + $450,000 = $5,630,000 (Total Annual Revenue)
Remember to differentiate gross revenue from net revenue when calculating your business's annual revenue. Gross revenue excludes all costs related to production or operation; it is revenue that comes from sales alone. Net revenue is the amount your business generates after subtracting returns, canceled orders, price reductions, and other costs.
Evaluating the results.
Once you have generated your business's annual revenue report, it is recommended that you double-check the numbers to ensure they are accurate and that everything is present. Then, review the results and look for patterns in sales performance, seasonal fluctuations, and areas that require improvement.
If you have products or services that yield high profit margins, this is encouraging. Solid profit margins indicate that you’re not only covering your costs effectively but are also generating robust revenue compared to your expenses. On the other hand, low-profit margins can suggest that the costs of your products or services are consuming a significant portion of your revenue. In this situation, you might want to revisit your pricing strategy and operational setup to find ways to increase profits.
Annual revenue and borrowing.
When securing business funding, such as a working capital loan or business line of credit, your company's annual revenue is vital in determining borrowing power. Lenders view revenue as a key indicator of financial health and the ability to repay borrowed funds. A strong revenue stream demonstrates stability and instills confidence in lenders, making them more willing to offer loans and financing with favorable rates and repayment terms.
Conclusion.
Evaluating your annual revenue gives you a bird's-eye view of your business's financial situation. Analyzing these figures gives you valuable insights into revenue trends, costs, and profitability. With this information in hand, you can make informed strategic decisions about the future of your business.
Disclaimer.
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind.
