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What is turnover

Saarrah Mussa
Written by  Saarrah Mussa
5 min read
Updated: 20 Mar 2024

When you are running a business there are so many process and piece on jargon to get used to. Turnover is an important one of them. Learning and understanding these processes can ensure your business can run as smoothly as possible.

What is turnover? 

Turnover in business refers to the total amount of income a company generates from its core activities over a specific period of time. It is essentially the money that comes into the business before any expenses are deducted. This is the same for both service-based businesses as well as product-based businesses. It is also referred to as gross revenue or gross income.  

business

How do you calculate the turnover of a business? 

Calculating the turnover of a business can be quite a straightforward process. It involves summing up all your sales income over a specific period. It is important that the turnover is only the metrics of how much income the business has generated without anything deducted from that number. The timeframe is usually a tax year or a quarter depending on your accounting practices.  

Calculating your turnover can help you understand how well your business is doing. Turnover itself is not a direct measure of success of your business, each business will make a degree of turnover but it may not dictate the level of success of the business

Is turnover calculated before or after tax?  

Turnover is calculated after VAT is deducted from the income. VAT is not considered part of your business income. In order to get an accurate picture of the turnover of your business you need to exclude VAT from your sales total. Your gross profit/ turnover does not include other tax liabilities.  

Turnover vs profit: What’s the difference?  

Turnover and profit are not the same thing. Your turnover is the total amount of money your company generates, it does not include expenses. Your turnover will simply represent your toal sales income. Whereas profit includes all expenses (which are subtracted) and it represents your residual earnings after all expenses (including tax liabilities) have been charged. This number is your ent income.  

Amount

Turnover

£50,000

- Cost of good sold (COGS)

£20,000

= Gross profit

£30,000

- Operating expenses

£15,000

= Net profit

£15,000

Why is turnover important? 

Turnover is a crucial metric for several reasons including:  

  • VAT registration:  

  • Maintaining accurate accounts:  

  • Financial health indicator: 

  • Loan applications: 

  • Business insurance costs: 

By keeping track of your turnover and understanding its significance, you can make informed decisions about various aspects of your business, from VAT compliant to financial planning and securing funding.