What Your Business Sales Turnover Does for Your Business – Business turnover is very important for business growth and development. Therefore, you require good definition of what is annual turnover of a company, what is periodic turnover in a business? How to calculate annual turnover from balance sheet and what is turnover in accounting.
This post is poised to expose you to how sales turnover drives your business. Our opinion is that without good sales turnover, your business may not go on well. In our years of management consulting services, accounting, auditing, taxation and in preparation of organisations and individuals business plan, we place emphasis on this subject matter. However, we still see that many business men and women don’t know so much about the importance of sales turnover in their businesses. That is why we are writing this – What Your Business Sales Turnover Does for Your Business.
Who Needs this posts?
Table of Contents
If you are in business or about starting one try your best to read through this post. This post – What Your Business Sales Turnover Does for Your Business – will help you know why you need to grow your sales turnover and what it does for your business. It contains the meaning of turnover, how it’s derived and what it covers.
What then is Sales Turnover?
Sales turnover is the company’s total units of products or services sold over a given period of time – daily, weekly, monthly and annually, multiplied by the unit sales price.
Furthermore, Sales turnover represents the value of total sales provided to customers during a specified time period – daily, weekly, monthly and annually. What we mean here is only revenue that is generated from daily operations, not non-operating revenue or what accountants call extra ordinary incomes.
In addition the term is often just referred to as sales or net sales, which means revenues without VAT.
Sales turnover is usually expressed in monetary terms but can also be in total units of stock or products sold. Whatch out What Your Business Sales Turnover Does for Your Business.
|LET TURNOVER GROW|
Now, what is the first importance of Sales Turnover in your business?
The first thing sales turnover does for your business is to absorb the cost of sales/production. Cost of sales is the total unit cost of purchase of your wares/product plus cos of carriage inwards. In this first assignment of sales turnover, it must be large enough to cover the cost of sales/production to generate the second result in the assignment equation; the gross profit. If this gross profit is not realised or is very small, it may not be able to carry out the other functions. In this line of assignment still, the next thing is that this gross profit is expressed as a proportion of the sales turnover to generate gross profit margin. This is a very important performance analysis ratio for businesses.
You may have seen that sales turnover has carried three assignments above. The next assignment is that the gross profit it generated should be able to cover administrative and statutory expenses and obligations.
These expenses can be classified as – What Your Business Sales Turnover Does for Your Business. as follows:
(1) Admin. Expenses – This include cost of capital (interest charges), personnel costs, Utility bills. Most variable cost fall under this heading.
(2) Fixed Expenses – This may include cost of depreciations and amortised intangible assets plus other expenses that are fixed in nature. Some salaries and allowance are fixed.
(3) Statutory Expenses – These are Taxes in the form company income tax, PAYE as personnel income tax, VAT etc., operating licences, and fees.
(4) Generation of Net Profit – The point is sales turnover should be large enough to cover all of the above so as to leave some thing as net profit. This net profit takes care of stakeholder dividends, and reserves.
It’s this reserves that sustains the business and give rise to company/business growth and development. If there is not reserve, operating funds may be borrowed.
To obtain a healthy profit and sustain the business, you need to know what level of turnover your business requires compared with how much it generates. Considering what is happening economically nationally or globally, your business targets and the current situation in your industry, look at your pricing, company spending and use of your profits, and decide how each of these will help you meet your target. Appraise your business performance, you can use certain profitability ratio parameters.
Turnover for Your Business
The essence of this write-up -What Your Business Sales Turnover Does for Your Business – is to help you know the importance of sales turnover. What do you think happens if the sales turnover is not there or is not enough to cover all of these expenses. If you are in business or about to start, consider working some feasibility analysis on the busness turnover
Complete Full Marks Consultants Limited presents this topic – What Your Business Sales Turnover Does for Your Businessas – as a public coaching session. We hope it benefits you, if it does, please share to reach others. If you have questions or comments especially on how to build up the turnover, or gross profit margin, send such through the comment box on this page.
Complete Full Marks Consultants Limited as an accounting, auditing, taxation and business management consulting firm, assists clients with business information; incorporate clients companies and name registration at CAC Nigeria, prepares clients business plans, tax clearance certificates, and assist clients obtain mining licences.
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Founder/Managing Partner of Complete Full Marks Consultants Ltd. An Economist turned Chattered Accountant and Tax Practitioner with over 37 years of industrial experience.