What Are Net Proceeds? (Plus How to Compute and Examples)

Updated September 30, 2022

Businesses hire financial and accounting analysts to help them analyze their financial records and monitor their income and expenses. They keep records of operating expenses, loans, and earnings, which may help in their analysis of the business' profitability. Learning about the concept of earnings or revenue may help you formulate an effective strategy to increase a business' income. In this article, we define revenue or net proceeds, compare it with profit, discuss real estate and investment net revenue, describe how to improve and compute for it, and provide examples.

What are net proceeds?

Net proceeds or revenue refer to the cash a company received from the sales of goods or assets in a particular period after deducting all costs and expenses. It may mean the total amount derived from a sale or the remaining amount of money after subtracting all production costs. Depending on the assets the company sold, the revenue may constitute a marginal or substantial amount. This term refers to the business' income and holds a relationship with the term profit.

Revenue describes the amount left after removing all costs and expenses from the gross profit. From this value, deductions may still take place during the financial analysis process. One of the deductions is the capital tax gain that comes from the revenue and not the gross profit. The capital tax gain refers to the levy on the profit that the company incurs upon selling its investment.

Factors to include in net revenue

The revenue refers to the final amount that a seller receives from the sale of an asset after carefully considering all costs. Knowing and being aware of all the costs associated with the sale of a good or asset helps a vendor decide and determine the appropriate selling price. The costs may include:

legal and appraisal fees
expertise, technology-related, or professional fees
bonuses and commissions for the sale
cost of marketing, advertising, digital media, and promotional materials and efforts
taxes
regulatory expenses

All these factors help a vendor or a merchant decide on the proper price for their products and services. These data on costs undergo analysis before a seller participates in a sales transaction. Financial analysts take into consideration all of these costs and expenses to come up with the most profitable deal.

Net revenue vs. profit

Many people use the terms net revenue and profit interchangeably. While they may be similar, they're distinct from one another. Profit refers to the net income or the value of earnings for a certain period. It's the amount left after subtracting all necessary expenses. Net revenue may mean the total revenue a company collected from a sale or the money remaining after all deductions.

The most notable difference between the two lies in the tax. Net revenue or proceeds mean the total amount after taking into account taxes, fees, and other expenses. Profit doesn't include tax payments. This results from the fact that analysts perform tax calculations based on a certain profit percentage. This means it's necessary for them to derive the profit before performing any tax deductions.

Real estate net revenue

The sale of a home constitutes one of the most common sales transactions that impact revenue. When calculating the net proceed from selling a house or real estate property, the company deducts all associated costs, such as outstanding mortgage and any security hold or claim on the property, the commission for both the seller and the buyer's representatives and agents, excise tax, and other closing costs. If the analysis results in a negative revenue, the seller provides cash at the time of closing to pay the mortgage or to get bank approval for a short sale.

The seller records all the costs relevant to selling the house under the debit side and charges these against the sale price. The sale price refers to the amount that the seller receives and it falls under the credit side. Some of the costs under the debit side include the escrow handling fees, transfer fees, excise tax, pest inspection fees, home warranty, outstanding mortgage, inspection and repair fees, and homeowner association dues. The seller deducts all these debit costs from the credit side to get the revenue.

Investment net revenue

For the net proceed on investments, it may help to understand that the income from selling mutual funds, property, stocks, and other assets falls under an individual, personal, or corporate tax return. The seller pays the tax on the asset's capital gains and not on its selling price. The government may require the taxpayers to pay their taxes on the capital gains that came from selling the assets. To obtain the capital gain and losses, the seller researches the basis amount. This is the amount they paid in acquiring the asset.

Improving net revenue

The increase in a company's net revenue helps in the overall success of the business. The industry measures businesses depending on their profit volume. To improve profitability, businesses may consider the following methods:

reducing overheads, which include cutting down on bills that may include telephone and internet
lowering miscellaneous costs, such as travel expenses
minimizing the cost of goods or services the company sells by negotiating better and lower prices with suppliers and optimizing manufacturing and operational processes
increasing sales volume by investing in media advertisements and other marketing and promotional materials
getting professional advice through consultations with financial analysts and business experts who can help improve current business processes

How to calculate net proceeds

Knowledge of a business' revenue helps companies conduct a profitability study successfully. It also helps them make decisions regarding the selling price of their goods and assets. This places them in a good position in terms of sales and income. To calculate the net proceeds, you may consider these steps:

1. Create a list of all costs and expenses

You may start by listing down all relevant costs in selling a good, asset, or service. This may include taxes or fees. When selling a house or a real estate property, consider the property claims, commissions, and remaining mortgage balance.

2. Add up all the costs

After completing the list, add all the costs and expenses. This makes up all the deductions necessary to obtain the final revenue. Make sure that you consider all relevant expenses to come up with an accurate figure or value.

3. Compute the net revenue or proceeds

It's important to take note of the final selling price for the good, asset, or service. Use the total cost value and subtract it from the selling price. This gives you the net revenue for the transaction.

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Examples of net proceed calculations

Understanding net revenue and knowing how to calculate it may be beneficial if you're considering a career as a financial analyst. This information may help you become a better contributor to the development of sound business analysis. To help you understand the concept more, here are some examples to consider:

Example 1

Below is an example of how to calculate net revenue or proceeds:

Jamie tries selling a house for $100,000. The real estate agent fee amounts to $5,000, advertising costs at $1,000, and closing costs fall to $6,000. These amount to $12,000 in total costs and expenses. To arrive at the net revenue, she subtracts the total costs from the sale price of the house, resulting in $100,000 minus $12,000. She came up with a total revenue of $88,000.

Example 2

Here's another example of computing for net revenue:

Darwin entered the investing scene when he was in college and recently bought stock worth $3,000 and paid a broker's commission fee of $50. The total amount that Darwin spent on the stock was $3,050, which he obtained by adding the $3,000 cost of the stock and the broker's commission. He then decides to sell the stock to his colleague for $6,000.

To help facilitate the selling, he paid another $100 for the broker's commission. Darwin's revenue for this transaction equals the selling price of the stock minus the broker's commission, which is $6,000 minus $100. For the sale of his stock, Darwin earned $5,900.

Example 3

Here's one more instance of how to solve for net revenue:

Ari sells her painting through an art gallery she found online. She prices her painting at $10,000. During the discussion, the art gallery confirmed that they take a 40% commission from all art sales. No other fees will be collected from Ari.

To obtain her revenue for this sale, she calculated the commission percentage, which is $10,000 times 40%, which equals $4,000. She then subtracted this amount from the selling price of her painting, resulting in the equation $10,000 minus $4,000 equals $6,000. This is Ari's revenue for this transaction.

Example 4

Below is another example of a net revenue calculation:

John sells his house for $60,000. The related expenses during the transaction include $50 for travel costs, $500 for the advertisement cost, and $3,000 for the realtor's fee. The total costs incurred are $3,550, which is the sum of $50, $500, and $3,000. To obtain his net revenue, he subtracted $3,550 from the selling price of $60,000 and came up with the figure of $56,450.

What Are Net Proceeds? (Plus How to Compute and Examples)