Revenue and Profit are two totally different things in your handmade business. Don’t get confused between these two terms.
To get straight to the point. Revenue is the money you make by selling your finished items or patterns. Profit is what’s left after paying your expenses.
Many handmade business owners get totally confused by the terms “revenue and profit”. It would help if there weren’t multiple names for each (that mean absolutely the same thing) and everyone used the same terms. Unfortunately, that would only happen in a perfect world….
What is Revenue?
Revenue is the number that most people are concerned with. Revenue numbers aren’t the only ones to worry about. There are other number you need to know, like how much you spent.
Revenue is the money that’s coming into your business. Depending on who you are talking to, they might call it Income, Sales, Gross Receipts, Gross Sales, etc.
As a handmade business owner, you could have different types of revenue from:
- Selling your products or items (patterns, finished items, courses, printables, etc.)
- Ad revenue (from Share-a-Sale, Mediavine, Google Ads, etc.)
- Affiliate revenue (from selling things that belong to others)
- Get paid for writing a blog post for someone else
- Doing a webinar, a course, or a live Q&A for someone else
The different types of money your handmade business generates needs be recorded in both your bookkeeping records and reported on your tax return.
- The first type of income/sales/revenue is the main money you bring in from the sale of your goods or services. You report this amount on Line 1 (Gross Receipts or Sales) of your Schedule C.
- The second type of income/revenue is all the other money your business brings in. You report that money on Line 6 (Other Income) of your Schedule C.
What is Profit?
Profit, Net Profit, Net Income, Net Sales is the money that’s left after you’ve paid your expenses. Again, what it’s called depends on who you talk to.
After all the calculations on your tax return, Line 31 (Net Profit [or Loss]) on your Schedule C, should equal Net Income in your bookkeeping records.
Profit is really pretty simple – it’s your bottom line.
Revenue and Profit, don’t get confused between the two
Wondering why it’s important to not get confused between the different terms? Or why you should be tracking the different types of income you have separately in your bookkeeping records?
- If you charge Sales Tax, you report gross receipts or sales of your goods or services.
- Other Income (Ad Revenue, Affiliate Sales, etc.) isn’t included on Sales Tax Returns.
- Profit (Net Income) equals all the income MINUS Cost of Goods Sold and Expenses.
- Net Income (or Profit) is what you pay Income Tax on.
- Self-employment tax is calculated and based on Profit (Net Income).
It’s easy to get confused between Revenue and Profit.
Handmade business coaches and tax professionals don’t help matters either. They don’t use a consistent set of words or terms.
Things gets more complicated when these handmade business coaches create free bookkeeping spreadsheets that don’t split out the amount of money received from the sale of your goods or services and the “other” money received.
- This results in extra work for you, when it’s time to complete the tax returns you need to file.
- You end up having to separate the two types of income that you could have.
- And, worse yet —– you might end up reporting the wrong information!