What is Turnover?

Turnover, also known as revenue, is a term used within the financial landscape to measure the level of business completed through sales over a specific period. Turnover is a sum of income from your customers, such as sales, work completed for a service, or any other works that bring money into your business. Your company's turnover doesn't directly measure success, it proves to be a valuable indicator of business growth.

Typically assessed on an annual basis, your turnover becomes a dynamic measure, tracking your business's expansion as more activities are completed. It specifically focuses on monies brought into the business through sales, excluding loans, interest on bank accounts, and the sale of company assets from the annual turnover calculation.

Why Is Your Turnover Important?

You can find your turnover on your profit and loss account for your business. The term turnover can be interchangeably used with sales or revenue, capturing the sales revenue during a specified period. Most businesses have multiple income sources, from interest on bank accounts, to investments, but turnover only accounts for the sales revenue of the specified period. All trading activity from the business will be included in the turnover figure, including that from non-core business activity. For example, if you hot-desk in your office, and earn money from that, it will count as business activity and therefore will be included in your turnover figure. It's crucial to note that turnover excludes any VAT charged on sales.

Turnover is a great measure of business growth. If you sold £500,000 worth of products to your customers in 2019, at a 10%  profit margin, an increase in sales at that profit margin will not only increase your turnover but also your profits. Your turnover in 2019 would be £500,000, and your profit would be £50,000. 

If your 2020 turnover was £1,000,000 at the same margins, your business would have doubled in sales, and therefore doubled its profits. Your turnover in 2020 would be £1,000,000 and your profit would be £100,000.

It is important to remember that this isn't a strict correlation, as your profit margins may change as you scale up your business.

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The Impact of Turnover on Small Businesses

For small businesses, turnover serves as the pulse, indicating the rhythm of sustainability. Effectively managing turnover is like finding the perfect beat; it keeps the business alive and kicking. Given the constrained resources typical of small businesses, effective turnover management takes on heightened importance. Tailoring strategies to the unique needs of small businesses becomes essential. Whether optimising cash flow or utilising turnover for growth, it's crucial to explore practical approaches that align with the scale and agility of smaller enterprises.

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Navigating the Ebb and Flow

Recognising the patterns and fluctuations in turnover over the year is key to maintain through the diverse challenges and opportunities faced by small enterprises. Small businesses must adapt meet the ever-changing demands of the business landscape. Whether capitalising on growth opportunities during upswings or implementing resilient measures during downturns, mastering the ebb and flow of turnover is integral to the resilience and prosperity of small businesses. There are finance options available to help counter seasonality, for example, MCA (Merchant Cash Advance) is a type of finance that is tailored to seasonal fluctuations.

Turnover Doesn’t Equate to Success

Success in small businesses is multifaceted, with profit being a fundamental indicator. Profitability signifies a successful business, where gross profit represents the sales margin (total sales minus costs to make the sale), and net profit reflects funds after deducting all expenses. Increasing profit over time indicates business growth and success. Additionally, cash flow is crucial for business success, ensuring a consistent inflow of funds to cover committed expenses. Notably, neither profit nor cash flow is reflected in turnover, emphasising that turnover is a measure of size, not success.

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How to Boost Your Turnover

Increasing turnover is directly linked to growing the size of your business and often correlates with increased profits. Scaling up requires preparation, and alternative business funding solutions, such as Asset Finance, can play a pivotal role. This method enables the acquisition of more equipment, plants, or vehicles, contributing to increased turnover.

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As a commercial finance specialist, Spark Finance offers consultancy services to SMEs, assisting in finding the right funding solutions for you. Dealing with a vast network of lenders in the UK, we cater to Limited Companies registered with HMRC, work with challenger banks, peer-to-peer lenders, and high-street banks. It's useful to explore various funding methods, including investor partnerships, crowdfunding, and finance products, to elevate your small business to new heights.