What Is Gross Revenue? A Guide for Business Owners
by Fundid on Nov 3, 2021 9:30:00 AM
A business needs to be able to create financial documents in order to understand how the company is doing financially. Gross revenue — sometimes called gross income or the top line — shows the value of a business and is a good way to calculate other financial information for the business. Below, we are going to tell you everything you need to know about gross revenue.
What is Gross Revenue?
The gross revenue of a business is the total amount of revenue it earned in a selected time period — typically, it is one year. Gross revenue does not look at any of the expenditures in the business, like the overhead or cost of goods; it is just how much money the company earned in the chosen timeframe. For example, you are selling a product for $30 that costs $8 to make. The gross revenue of the sale is $30.
Do Gross Revenue and Gross Profit Mean the Same Thing?
Gross revenue and gross profit are not the same things. The revenue looks solely at how much you made, but profit looks at how much you made after expenses. To use the above example again, if the product costs you $8 to make, then the gross profit from selling the item is $22. Other things that are factored into gross profit include your operating expenses, so your gross profit from selling that item can dip down significantly once those are factored in.
Why is it Important for Business Owners?
If your business has external stakeholders, gross revenue is how your business demonstrates its value to them. Investors want to see how much money the company is earning, which is why using gross revenue for this is important. It can show if the business is worthwhile to invest in.
Depending on the industry your company is in, the gross revenue might not be as important for your financial records. It is the starting point for most other accounting, but it is not the only number to focus on. It is important to note that even if a business has a high gross revenue, it can still not be profitable. Focusing solely on gross revenue has the potential to hurt your business in the long run.
Gross Revenue vs. Net Revenue (net sales): What's the Difference?
The net revenue — also called the bottom line — of a company comes from the gross revenue. When you subtract the costs of goods sold from the gross revenue of a business, you get the net revenue. You can use your gross revenue and net revenue together to see how your business is performing and can give you a clear picture of the financial health of your business.
Gross Revenue — Costs — Overhead — Expenses= Net Revenue
You can have a negative net revenue if your gross revenue is lower than your operating costs and the costs to make your products.
How to Report Gross Revenue vs. Net Revenue
Gross Revenue Reporting
When reporting the gross revenue of your business, it goes on your income statement as top line revenue. It is an easy number to find and report in your accounting information.
Net Revenue Reporting
A business usually needs to report its gross revenue when it has a commission, or a supplier receives supplier revenue. This is also reported when a business does its taxes, and it is usually the bottom line in the form, which is why it is called such.
Where Should I Put my Gross Revenue on my Income Statement?
A business should put its gross revenue on the top line of an income statement, which is why it is typically called the top line.
Can a Company Have a Negative Gross Revenue?
The gross revenue of a business cannot be negative because gross revenue does not factor in any of a business' costs or losses; it only looks at the total income brought in. Your net revenue, however, can be negative if your business is spending more on operating expenses and costs than on new income.
Best Practices for Evaluating Your Business’ Gross Revenue
Now that you have a better idea of what your gross revenue is, let’s take a look at some best practices for evaluating the gross revenue for your business.
Identify All Income Sources
Your gross revenue is pure income, so you need to identify all of the income sources for your company, then add the total amount of income from these sources together to determine your gross revenue. Make sure you include every income source your business has.
Know Your Audience
Who are you evaluating your gross revenue for? It can be used for potential lenders, stockholders, or investors. It is usually a standalone number, but it can be more powerful when you use your gross revenue in conjunction with your net revenue or the costs of goods sold. You can put your presentation together with that information in a way that the audience can appreciate.
Track Gross Revenue Consistently
Track your gross revenue regularly and consistently. This will allow you to see if your business is growing or if it is stagnant or losing money over time.
Who Needs to Know Your Gross Revenue?
Banks, Lenders, Credit Card Companies
If you are trying to get a business loan or a line of credit, you can use your gross revenue to show the lender that your revenue has been growing, which indicates that you will be able to repay the loan. If your gross revenue has been stagnant or declining, your business is a high risk to the lender, and you may not be able to get as good of loan terms, and you might not be able to get a higher loan amount. If you plan to open a line of credit for your business, you will need to have high gross revenue and strong net revenue, in addition to other things the lender requires for you to qualify for a line of credit.
A lender will look at other aspects of your business when assessing your risks for a loan, and they will also examine your business' credit score, which is usually separate from your personal credit score. Gross revenue may be the starting point for a loan, but it is not the only place they will look.
Stakeholders, Potential Investors
If your business has stakeholders or you are seeking out potential investors, you will need to use your gross revenue to show how financially healthy your business is. It will need to show that for multiple years, your gross revenue has increased. If your gross revenue has been stagnant for multiple years, or worse, has declined, it is going to be difficult to sway your stakeholder or convince new investors to take a chance on your business.
Gross Revenue Opens Financial Doors
Your gross revenue is a key part of showing lenders and investors how financially healthy your company is. While they may look at other aspects of your company’s finances, too, this is one of the first things they will look at when deciding if they should provide you with financing. Track gross revenue consistently or subscribe to Bench to receive a personal financial advisor without having to hire an employee.Need funding to grow your business? Fundid is re-imagining how businesses get the funding they need to grow. Get loan offers that meet your business needs from several funders through Fundid Capital. With additional capital, you will have the opportunity to fund initiatives that will help you grow your business faster. Explore your options.