What is Turnover and how does it affect your business?

October 20, 2020
Construction Worker

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 workds that bring money into your business. Your company's turnover will not measure your success, as expenses are not taken into account, but it can be a useful measurement of business growth.

Turnover is a simple way to measure the size of your business. It is used by lenders to determine whether the business is a good fit for them, as it allows them an insight into the amount of activity going through the business. Although a higher turnover is seen as more preferable by a lender, it does not necessarily equate to a healthier business as profits, a positive balance sheet and a consistent cash flow are not at all reflected in your turnover.

Typically measured annually, your turnover will track how your business grows as more activity is completed. Turnover only includes monies brought into the business through sales, meaning loans, interest on bank accounts, and the sale of company assets do not count towards your annual turnover.


Why is your turnover important?

You can find your turnover on your profit and loss account for your business. The term can also be replaced by sales, or revenue. 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. Turnover also does not include 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.


Turnover doesn’t equate to success

There are multiple key indicators of a successful business. The most common sign of a successful business is profit. If your business is profitable, you (by definition) run a successful business. Gross profit is the sales margin, so the total sales minus any costs made to bring in the sale, and Net profit is the total sum of funds left during a set timeframe after the deduction of all expenses. Profit increasing over a period of time is a great sign of business growth, and success. Cashflow is also an indicator of success. To run a business successfully, a consistent flow of funds is essential. Cashflow is determined by the amount of money coming into the business on a consistent basis, meaning your committed expenses are covered. Neither profit, or cashflow are reflected in your turnover, as turnover is a measure of size, not success.

How to boost your turnover

Increasing your turnover is directly correlated with increasing the size of your business, and is often correlated with increasing your profits. It isn't simple to upscale your business, and it takes preperation. An alternative business funding solution is a possible method to increasing turnover. Asset Finance, as an exmaple, can allow you to purchase more equipment, plant, or vehicles for you to rent out. This would therefore increase your turnover. This funding solution is a service provided by a lender, and within the alternative business funding landscape these are typically not high-street banks. We work with challenger banks, peer-to-peer lenders, and some arms of high street banks.

Within the sphere of alternative business funding comes plenty of methods that allow you to raise funds, including options such as investment from different types of investors, crowdfunding, and finance products from the financial houses mentioned prior.

JD Capital Finance is a firm of commercial finance specialists, focusing on acquiring SMEs the funding they require. We provide a consultancy service to you, helping you through as you seek the right facility for you business. This comes at no cost to you. as we are paid a finder's fee by the lender you are partnered with. As we deal with lenders based in the UK, we can only help UK businesses registered as Limited Companies with HMRC.

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Disclaimer: JD Capital Finance helps UK firms access business finance, working directly with businesses and their trusted advisors. We are a credit broker and do not provide loans ourselves. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. JD Capital Finance can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. JD Capital Finance may receive a commission or finder’s fee for effecting such introductions.

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