Revenue Vs. Expenses

by Casey Reader; Updated September 26, 2017
finance/a calculator and a hand on a document

Every business makes a basic calculation for every decision in which it balances projected revenue versus projected expenses. This is so fundamental a part of the business process that it often goes unremarked. However, this does not change the importance of this calculation. Understanding the relation between revenues and expenses will take you a long way toward understanding how business works.

Revenues

A business's revenues can be defined as the amount of money that at any time it is bringing in through sales or any other ventures. A company's revenues will fluctuate greatly throughout any period of time depending on the demand for its product. For this reason, it is wise to select a specific increment of time in which to measure revenues. Companies often prepare annual revenue reports that measure their total revenues for a year.

Expenses

A company's expenses can be defined as any cost that it might incur, such as for infrastructure or payroll. Expenses also will often fluctuate during any period of time but are more under the direct control of a company. It is possible to reduce expenses by making cuts in one or more areas. Most businesses attempt to correlate their expenses with revenues so that expenses stay within range and do not exceed revenues.

Risk

Any business faces a choice of how much risk to take when it comes to its revenues versus its expenses. By spending more as a business you will stand to gain more in revenue if you are successful. If you aren't successful, however, your expenses will potentially exceed your revenues and leave you in debt. There is a standard rule in business that the more risk you take the more you will stand to gain.

Debt

It is not at all unusual for a business's expenses to exceed its revenues. The majority of new businesses spend their first several years in debt. Revenues take time to build, where as expenses are immediate. There are many ways that businesses cope with this situation. Many take out loans of various sorts from financial institutions. Others receive funding to keep them afloat from investors, such as venture capitalists or family members.

About the Author

Casey Reader started writing freelance in 2010. His work appears on eHow, focusing on topics in history and culture. Aside from freelance work, Reader is actively pursuing a career in creative writing. He graduated from Centenary College of Louisiana with a Bachelor of the Arts in history and English literature.

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