Whenever someone requests a quote from us we always have to ask about your annual turnover.
Most business owners know what turnover is, but if you’re a little unsure that’s totally understandable.
To help out we have put together a quick guide on turnover for tradies and other business owners.
Calculating Your Turnover
Your turnover (also referred to as revenue – see below for more info) is the total of all money that passes through your business each year as a result of the sale of goods and services.
If you only provide labour services, your turnover will be the total of all labour you have charged for.
If you provide labour and product, your turnover will be the total of all labour and product you have charged for.
What to check when you’re providing a product with your labour
When it comes to providing a product along with your labour, whether or not the cost of the product is included in your turnover depends on how it’s being paid for.
If you’re supplying the product that you’ve purchased through a wholesaler and are invoicing the client for, then the sale of those goods are part of your turnover.
But if the client is paying the supplier directly, this is not a part of your turnover.
If you run a business which doesn’t provide any labour and is more about selling a product (so more like a retailer than a tradie) then it will be the total of the product sold.
Essentially your turnover consists of all money that has come into your business through charging for labour, product and any other services.
What if I use subcontractors?
If you are invoicing the client for the total cost of the project and paying your subbies from that amount (which is usually the case), then you should be including the full invoice amount in your turnover.
If your subbies are invoicing the client directly, and not through you, technically they are not your subbies and their cost is not part of your turnover.
If you’re researching information on calculating turnover for the purposes of claiming the Jobkeeper payment, we’ve put together an additional resource.
Click here for more resources specific to Jobkeeper.
Common Misconceptions
It’d be wrong to say this is a common mistake, but one that does come up occasionally is when tradies confuse turnover with earnings.
Your earnings are basically your total turnover less your total expenses. When calculating your turnover you should not be taking into account any expenses.
Usually we can tell when someone gets their turnover wrong. Commonly we’ll get someone telling us their turnover is $100k but they employ four staff.
Clearly someone with four staff couldn’t be turning over just $100k (unless they are paying their staff a pittance!) and in most cases they are only looking at their own earnings rather than the total turnover of the business.
Is Revenue The Same As Turnover?
Yes and no. If you Google the term ‘is revenue the same as turnover’ you will find some people arguing yes and some people arguing no.
For the average tradesperson or small trades business, turnover and revenue will generally be the same thing, which is simply the total of all invoices and amounts charged during the year.
More Information
If you’re unsure about how to calculate your turnover you should speak with your accountant.
You can also speak with the team here at Trade Risk, but keep in mind that we can only provide general advice on this subject since we are not qualified accountants.
Advising us of your turnover is an important part of the insurance process, as getting it wrong could result in the wrong premium being charged, and in serious cases it could potentially complicate a claim.
What About Profit?
When it comes to business insurance, your profit is irrelevant.
But for almost anything other than insurance, profit should be everything to you!
Whilst we can’t help you out in that area, we do know some switched on people who can.
PROTRADE United are specialists in this area, and help trade business owners to grow their business and their profits.
You can visit their website here, and we also recommend checking out the free article below which has some helpful info regarding revenue, expenses and profit margins:
How to Calculate your Financial Break-even Point
Trade Risk does not receive any financial benefit if you become a client of PROTRADE, but it’s in everyone’s interests for your business to be healthy and growing.
