A quick guide to calculating turnover

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When running a small business, calculating turnover is a vitally important skill. While it may sound confusing to first time business owners, it is in fact very simple.

Essentially, your turnover is the amount of money taken by your business over a particular period of time.

So if you are a personal trainer and you train 10 clients a week, five hours a week for £20 an hour, your business turnover is £1,000. (£20 x 10 clients x 5 hours) a week.

Knowing how much money your business turns over in a given period can be very important. Not only will you need it for tax purposes, but knowing your figures is crucial if you are seeking investment, be it privately or via a bank loan.

Many insurance companies will ask you for your annual turnover before giving you a business insurance quote too. Sometimes this may be referred to as your gross revenue or income, but essentially it means the same thing.

Fundamentally though, knowing your turnover gives you an idea of the performance of your business.

The difference between turnover and profit

Your turnover alone won’t necessarily tell you of your business’s health though. Working out your profit can provide a better pointer.

Again, different terms may be used when describing a business’s profit.

Gross profit is the amount of money you take in (the sales value of your goods or services), minus the costs associated with producing your offering. These costs can include physical materials needed to deliver your goods – leads if you are a professional dog walker, equipment if you are a gym – and the direct labour that needs to be employed to carry out the service.

Sometimes known as the ‘bottom line’, net profit is the residual income after all costs have been accounted for. As well as the costs of providing your service, these include overheads such as office rental costs, heating and lighting costs, for example.

Essentially it is all the money you bring in via sales, minus all of your outgoings.

While neither of these three are more important than the others, calculating turnover is the first step to understanding the performance of any business.