What is annual turnover?

Annual turnover is an essential concept to understand if you are looking to grow your business, and represents the total income generated from sales over the financial year. This type of figure gives you a snapshot of how well your business is performing in terms of selling its products or services, and provides you with key information to inform your future financial decisions.

In this blog, we discuss how annual turnover works, including some of the misconceptions around this term. 

What does annual turnover mean?

Annual turnover refers to the total revenue your business has generated through sales in a year, and is an important measurement of business activity that shows financial figures related to the sales of products and services. This can also be referred to as ‘gross income’.

Annual turnover, profit, and revenue

These 3 terms are sometimes mistakenly used interchangeably. There are a number of key differences that mean turnover, profit, and revenue are measured differently, providing a number of insights.

Turnover vs. profit

Turnover shows your total income from sales, whereas profit reflects the money left once all relevant expenses have been deducted. For example, if your business has an annual turnover of £100,000, but your costs such as labour and materials total £60,000, then your profit becomes £40,000.

Turnover vs. revenue

In the UK, ‘turnover’ and ‘revenue are sometimes used interchangeably, but revenue will often include income from non-sales activities such as investments. In most cases, smaller businesses may consider turnover and revenue the same when there are no other income sources involved.

Why is annual turnover important?

Annual turnover is more than just a sales metric - it is a powerful indicator of your business’ financial potential and market position, influencing several key areas such as your investment potential, performance metrics, and considerations for if you decide to sell your business.

In terms of your investment potential, investors often look at turnover growth to determine the market demand for your company’s offerings, and a consistently high turnover will often signal growth potential. By examining your annual turnover, your business can make more informed decisions regarding whether to expand its market reach.

After a period of growth you may also consider selling your business to pursue other ventures, and in this instance your annual turnover may play the biggest role in putting a price on your company. Buyers will always be interested in finding out your annual turnover to gauge how well you are performing financially.

Other types of turnover

There are a number of other types of turnover a business may need to consider when assessing its overall financial health and market position. This includes employee turnover; which measures how frequently employees leave a business within a given time period, and accounts receivable turnover; which shows how quickly a company collects its invoices and directly affects cash flow.

Both are important metrics to consider when they are negative. For instance, a high employee turnover could indicate issues in the workplace that affects productivity, and a low accounts receivable turnover could mean delayed payments, which impacts your available cash and potentially slows down the growth of your business.

The impact of late payments on annual turnover

Late payments from your customers can have a significant effect on turnover. When a sale is delayed, then the company’s effective turnover, or cash in hand, will be lower. This can create challenges with your cash flow, especially if you run a small business. QuickBooks’ accounting tools offer ways to manage and remind customers about payments to reduce the frequency of late payments.

How do I report annual turnover?

Reporting your annual turnover is essential for tax and compliance in the UK. Your business is required to provide turnover figures in your annual reports and tax filings to give the government and stakeholders a view of the scale of your business. Using QuickBooks expert accounting software can help make this process easier by tracking and calculating turnover across your sales channels.

How do I increase my annual turnover?

There are a number of ways a business can improve their annual turnover by employing smart business strategies, improving your market reach, and increasing your business' profitability. 

Annual turnover reporting with QuickBooks

Annual turnover is a vital metric that reflects your business’s income from sales and helps gauge market performance. It is valuable for assessing growth, attracting investors, and planning for long-term success. By focusing on strategies to grow turnover and effectively tracking it with tools like QuickBooks, you can build a more resilient and scalable business.

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