Checking your company’s financial health can help you spot areas of improvement and develop a robust financial strategy. But, it won’t be possible unless you have an idea of the company’s revenue and income. These two metrics often confuse business owners while preparing the income and financial statement.
Revenue and income have a slight but significant difference that must be known by businesses to get a bigger and clearer financial picture of your business.
Let’s face it: if you don’t understand what really sets them apart, then it may lead to financial mismanagement. Such things can hamper your business’s growth and you may soon experience financial instability.
Well, nothing to worry about as long as you know what is income and what is revenue in business terms. Here’s a guide on revenue vs income to educate business owners and help them achieve financial goals.
What Is Revenue?
Revenue is the amount of money earned by selling a product or offering a service, from which expenses are yet to be deducted. Mainly, it comes from the company’s product sales and therefore, sometimes it is known as ‘gross sales’.
Many people also termed it as “top line” because revenue is mentioned at the top of your company’s income statement. For example, let’s assume you are running a software development company. So, the money generated from building custom apps for clients is considered as company’s revenue. However, it doesn’t indicate how much profit you earned regardless of whether more or less money was received.
Different Types of Revenue
Revenue is defined into two main types, namely – Gross Revenue and Net Revenue.
Gross revenue
Gross revenue is the money received from the company’s overall sales, services offered, or any other investment. It is the sum of the total received amount prior to the expense deductions.
Net revenue
Net revenue is your leftover amount after you take off business expenses, discounts, or tax deductions from gross revenue. You can only calculate net revenue once you have identified the correct gross revenue.
What Is Income?
Income refers to the money left over after subtracting taxes, stock dividends, and variable or fixed expenses from the company’s gross revenue. In fact, it represents the bottom line, offering an extensive view of the incoming and outgoing cash flow of your business.
In accounting terms, it is credited with the term “the bottom line” because the company’s income is always mentioned at the bottom part of your statement. For example, your company makes $200,000 as gross income.
Now subtract all those taxes, expenses, and discounts, the remaining amount is your income.
Different Types of Income
Company’s income is divided into 3 main types – Earned income, Capital gain, and Tax-exempt income.
1. Earned income
It is money that you have successfully earned either by working hard or running your own business. Sometimes it is also considered “active income” because you consistently perform your duty to earn the money. So, the money earned by making efforts is your earned income. For example, if the cab driver earns tips from a passenger, it is earned income.
2. Capital gain
It is the money received by selling your valuable assets such as old office spaces, residences, transportation vehicles, or money earned from real estate investments. The tax rates on capital gains are 0%, 15%, and 20%. But, you should hold these assets for more than 1 year.
3. Tax-exempt income
When you pay interest on certain bonds such as federal bonds is considered as a tax-exempt income. Such bonds issued by government bodies will not fall under taxation. Hence, the income that is not chargeable to the tax is your tax-exempt income.
Generate Accurate Tax Reports Effortlessly
Import tax data directly using Moon Invoice and create tax reports in minutes rather than collecting hard copies.
Revenue vs Income
Revenue and income are two financial metrics that people fail to recognize. Especially startups because both of them contribute to the cash flow, creating great confusion while doing administrative tasks.
However, the difference of revenue vs income lies in the calculation, which is made considering expenses for revenue and without any expenses or deductions for income. Although high revenue is a good thing, it should be monitored regularly, as unexpected surges in expenses may occur.
If expenses are much higher, then find a way to reduce them. You must give equal importance to expenses as well instead of concentrating only on raising product sales.
Regardless of the money you generate from selling products, poor expense management will result in unfulfilled financial goals. In short, you need to run a revenue-generating company while keeping low operating costs.
Example of Revenue vs Income
If you have increased revenue and good income along with reduced expenses, then you can run a well-balanced company. But not, if your product sales are high and expenses are overlooked most of the time. Let us take an example of revenue vs income to clarify the difference between these two.
Suppose a pizza outlet run by you makes $700,000 per year by selling different pizzas, soft drinks, and other food products. However, the net earning is $150,000 after taking off material costs, employees’ salaries, rent, and other tax deductions.
It clearly shows the revenue is higher than the income, which means your pizza outlet still has a huge expense to cover. Therefore, despite generating revenue of $700,000, you only have to settle for a $150,000 income.
Here, your main concern should be to reduce expenses and earn maximum profit. An increase in net income can only be possible once you have a fine grip on business expenses.
Get Moon Invoice to Manage Business Finances
Since it’s difficult to retrieve data from hard copies while calculating revenue or income, Moon Invoice can make a real difference. It allows you to skip lengthy calculations and identify the right metrics. You no longer need to make extra efforts, simply use Moon Invoice to generate tax-complaint reports or to analyze revenue generated on a monthly or yearly basis.
Moon Invoice neither requires extra storage space nor additional time when it comes to organizing your business documents. You can safely store important invoices, receipts, reports, and tax records in the cloud, offering you robust security and easy accessibility from anywhere.
Conclusion
Whether it is revenue or income, you must give equal importance to both of them. These metrics provide a clear understanding of business productivity and what actions are needed to accomplish business goals.
We hope now you know how revenue differs from income and what cost does revenue include. Knowing about revenue vs income makes it easier to make informed business decisions.
However, bear in mind that these financial calculations should be done religiously to make changes in financial strategies and earn a competitive edge over others. If the conventional method does not work for you, adopting invoicing software like Moon Invoice can be worthwhile. Why don’t you take a 7-day trial? It’s free.
FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
