Turnover vs Revenue: What Are the Differences?
Most businesses use turnover and revenue interchangeably as they may both mean the total income or sales at a given period. Yes, companies can treat them as synonyms without problems as the two terms share similar ideas. However, small-to-medium enterprises need to know their differences.
This article will help you understand the difference between revenue and turnover.
What Does a Turnover of a Company Mean?
In business, you can use turnover to describe staff and inventory. Staff turnover involves how often people are hired and how long employees last before they resign. On the other hand, inventory turnover is the rate at which stock has to be replenished. Though these concepts are crucial to business success, they are not related to revenue—that’s sales turnover.
Sales turnover refers to the amount of money obtained from providing goods and services that fall within an organisation’s activities after deducting trade discounts, VAT, or other taxes. Generally, the turnover is the first figure that you may see in an income statement.
What Does the Revenue of a Company Mean?
In economic theory, revenue refers to the number of units a business sells. It can also be the number of customers multiplied by its price for the goods and services.
On the other hand, the UK's Generally Accepted Accounting Principles (GAAP) defines revenue in a broader view. To them, revenue is the gross inflow of economic benefits arising in the course of the ordinary activities of an organisation when their inflows increase in equity, excluding new share capital.
Differences between a Turnover and Revenue
While it may seem that turnover and revenue are the same, now that you have learned the definition of each term, here are some significant differences between the two:
- Revenue represents the amount of money that a business generates by selling its goods or rendering services to the customers and clients. On the contrary, turnover is the number of times an organisation burns through assets, including cash, inventory, and workers.
- The vitality of revenue lies in how it helps in understanding the business's strength, customer base and size, and market share. If there is a boost in revenue, it means there is stability and showcases business confidence. Meanwhile, turnover is essential as it helps in determining the liquidity position of any company.
- Every public company must report revenue, whereas a turnover is not compulsory to register.
- Revenue poses an impact on a company's profitability. Meanwhile, turnover affects a company's efficiency.
- A business should understand revenue as it helps determine sustainability and growth. In contrast, a turnover is essential to ensure nothing is idle in the inventory for an extended period and to manage the production levels.
Final Thoughts
Accountants treat revenue and turnover as two different terms. They might share some similar ideas, but for a general accountancy practice, they have their significant function for the business that needs to know.
For any queries about your business financials, you should consult 1 to 1 Accountants. We offer accountancy services for small businesses, including payroll, corporation tax, VAT returns, bookkeeping, and many more. Contact us today for more information.
