What Is Turnover

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Are you trying to figure out what is turnover?

Business turnover is a great way of measuring success. Turnover is often confused with profit which is incorrect. So how do you calculate business turnover? Continue reading this article we will deep dive into everything you need to know about turnover and how to calculate turnover.

Difference between turnover and profit

Turnover within the business is not the same as profit, however many people confuse the two.

There are 2 ways of calculating profit.

Gross profit is sales minus the cost of the product or service at hand

Net profit is the figure that is left after any deductions expenses such as tax, administration & VAT.

How to calculate the turnover of a company?

Calculating turnover figures is fairly simple to do if you’re keeping accurate records of your current sales.

Here’s an example of how to calculate your business turnover figure:

Business turnover definition

If you are calculating turnover for a small business then check out all the meanings down below.

Turnover / total sales

Turnover (annual turnover) is your yearly income before any expenses or costs of goods sold.

Turnover is calculated within a specific period of time. Turnover is usually calculated within the financial year.

Turnover is also known as total sales.

Costs of goods (COGS)

Costs of goods are the costs which you need to pay for the product or services you are selling.

For example, you may sell a service for £30 however it may cost your business £10 to fulfil the service.

Total sales minus costs.

Example of costs of goods

The formula for costs of goods

The formula for calculating costs of goods is starting inventory + purchases – ending inventory = costs of goods sold.

Gross profit

Gross income / Gross profit is the money prior to paying for any administrative expenses, taxes, or vat.

Are gross profit and net income the same?

No, Gross Profits & Net income are not the same. Gross profits are the company’s profits earned after any expenditures for the cost of the product or service also known as COGS – Cost of goods sold.

Net Profit

Net profit is what you end up taking home after all expenditures & taxes.

Is net income the same as profit?

Typically net income and profit represent the same meaning which is the final measure of profitability after any expenses are deducted from your revenue.

How to calculate VAT turnover

When calculating VAT current turnover you need to, first of all, calculate your normal turnover and then subtract any amount that can be excluded from tax.

Benefits of calculating turnover

When you how to calculate your business turnover you are then able to see your business’s performance it is a great way of measuring performance within your business. You are also able to do this every year or every half year.

Typically when your business turnover is increasing it is a key indicator of business growth.

Calculating turnover can also highlight cracks in your business you will be able to spot any issues prior very quickly. For example, let’s say your company is selling a product and you may think it’s profitable however after COGS that product may not be as profitable as you once thought so you may then decide to up your prices.

Understanding what is turnover is vital to any business owner especially if you are trying to grow your small business.

In some cases, a business generates loads of sales but they don’t calculate their turnover and net profits correctly and what they think is their most profitable product ends up not being as profitable as they thought.

Our team TaxBite can help with your business finance get in touch today and speak with our small businesses’ gross revenue specialist today.

Summary

If you have any further questions regarding what is turnover or cash flow give our team a show if you have any further general accounting questions feel free to get in touch today with our team where we will be able to assist you further.

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