VC GLOSSARY

Total annual income is the amount of income your company has per year before any expenses are deducted. It’s also called total annual sales and gross annual revenue.

Calculating your company’s total annual income is straightforward. It’s simply the sum of all your income during the year.

If your company hasn’t yet been operating for a full year, you’ll need to work out your total annual income from your total monthly income. If this has been relatively consistent, you may wish to operate on the assumption that it will continue to be so.

For instance, if your company made total sales of $10,000/month every month for six months, it’s reasonable to assume that your total annual income will be $120,000.

If all your income comes from sales, then your total annual income is equal to your total income from sales.

Some companies have income from additional sources too, such as dividend income or gains on investments. This also counts towards your total annual income, so for those companies, total sales do not make up the whole of their total annual income.

Total annual income is not the same as your annual profit. Your profit, also called your net income, is your income minus expenses, debts, and operating costs.

It’s possible for a company to have a high total annual income but a low (or negative) annual profit. This happens when expenses exceed income.

Revenue itself is not an asset. However, it is frequently used to purchase assets and to pay off liabilities.

In accounting, revenue is recorded on your income statement. It doesn’t go on the balance sheet with other assets.

Gross revenue is your total annual income: what your business earns before deducting expenses. Net revenue is your actual profit (after expenses are deducted).

You might think that only net revenue matters, but gross revenue can be a useful figure if you’re seeking investment. For instance, say your business is bringing in a good total annual income but has a low net revenue due to the one-off purchase of a building to operate from. In this case, your business might be doing much better than the net revenue figure alone would suggest.

By calculating your company’s total annual income, you can determine how much your company has made in the year before any expenses are deducted. When analyzing this figure, it is important to keep in mind that it isn’t the same as your annual profit.

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