Your turnover is the total amount your business recorded or invoiced as a sale during a specific period of time, minus any discounts or VAT. For instance, “our turnover last month was £1 million”, means the business invoiced one million pounds for products or services provided in that period. You might also hear it referred to as your income or gross revenue.
What does turnover mean for my business?
Like most types of financial reporting, tracking turnover is important because it can help you identify trends across a particular time period, which is useful for future planning. Reviewing your turnover also allows you to:
- Set and manage targets, and compare performance over a period of time
- Plan expansion and investment
- Work out what your business is worth
- Monitor whether or not you need to register for VAT
The difference between profit and turnover
Turnover is a useful figure to look at, but comparing it to your profits is one of the golden rules of financial management.
Making lots of sales and having a very high turnover is one thing, but if this is matched by very high costs then the business is only making enough money to stand still, rather than grow.
Your profit and loss statements show how much the business has left over once its expenses are deducted from the income it makes. Comparing this to your turnover figures can help you identify areas that may need more attention to operate more efficiently.
How do I calculate turnover for my business?
The way you work out your business’s turnover depends on which type of accounting method you use.
- With cash basis accounting you only account for sales if the customer has paid you
- If you use the accruals method, then your turnover includes the value of any services you provide or products sold within a given time period, regardless of whether or not you’ve received payment, or even raised an invoice.
An example of working out turnover
A business wants to know its turnover for February. It uses the traditional accrual accounting method.
- In February the business carried out and invoiced for £70,000 worth of sales
- The business also carried out £10,000 of work in the same month, but hasn’t yet invoiced the client
- The business’s turnover for February is £70,000 plus £10,000 = £80,000
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