When you hear someone mention "business turnover" in the UK, it can be a bit confusing. That's because the term actually has two completely different meanings.
On one hand, you have financial turnover, which is all about the money coming in. On the other, there's employee turnover, which is all about staff coming and going. Getting your head around this distinction is the first step to properly understanding the health of your business.
Let's break this down with a simple example.
Imagine a popular local coffee shop. Its financial turnover is the total value of all the coffees, pastries, and sandwiches it sells over a period, say, a month or a full year. This number is a pure measure of sales—it’s the total cash in the till before you subtract any costs like rent, staff wages, or the price of coffee beans.
Now, think about the staff. The shop's employee turnover is the rate at which its baristas leave and need to be replaced. This metric shines a light on the stability of the workforce. A high rate could be a red flag, pointing to issues with company culture, management, or pay.
In short: Financial turnover tells you how well you're selling. Employee turnover tells you how stable your team is. Both are vital signs for your business, but they measure completely different things.
This image here gives a great visual breakdown of financial turnover, showing it’s all about the total sales revenue your business generates in a specific timeframe.
As you can see, it's a straightforward measure of your gross revenue before any deductions are made.
While your financial turnover is often the headline figure that shows growth, keeping an eye on employee turnover is just as crucial for your operational health. For context, the Chartered Institute of Personnel and Development (CIPD) recently reported that the UK's average employee turnover rate was around 15%. That's a handy benchmark to compare your own business against.
To make the distinction crystal clear, here’s a quick side-by-side comparison.
Both concepts are essential for any business owner to grasp. You need to track financial turnover to prepare your official accounts and financial statements correctly, but monitoring employee turnover is just as important to protect your bottom line from the hidden costs of constantly having to recruit and train new people.
So, what exactly is financial turnover? Think of it as the total amount of money your business brings in from sales over a specific period—be it a month, a quarter, or a year. It's the big number at the very top of your financial statements, representing the entire pool of cash you've generated before a single expense is deducted.
This figure is a pure reflection of the demand for your products or services. It shows you exactly how much the market is buying from you.
The good news? The calculation is refreshingly simple. No need for complex accounting formulas, just basic multiplication.
The Basic Formula
Financial Turnover = Number of Units Sold x Price Per Unit
This gives you the gross revenue figure, which is what most people mean when they talk about business turnover.
Let's say you run a small online shop in the UK selling handmade candles. Over one financial quarter, your sales look like this:
To work out your turnover for that quarter, you’d simply do the following sums:
And there you have it. Your financial turnover for the quarter is £12,500. This number is a direct measure of your sales performance and how far your brand is reaching.
This is a common question for UK business owners, and it's an important one to get right. How does Value Added Tax (VAT) fit into the picture?
The rule is straightforward: your financial turnover should always be calculated exclusive of VAT.
When you charge a customer VAT, you're essentially acting as a collection agent for HMRC. That money isn't your income; it just passes through your business on its way to the taxman. So, it has no place in your turnover figure.
For example, if you sold an item for £120 (which breaks down as £100 for the product + £20 VAT), the turnover you'd record from that sale is just £100.
Keeping a close eye on this number is vital for truly understanding how your company is performing. For a deeper dive into how these figures feed into your bigger business strategy, our guide on management accounts and business performance analysis is a great next step after you've got a handle on turnover.
Your financial turnover isn't just a big number on a spreadsheet. It tells a powerful story about your business's health, momentum, and where it’s headed. For any UK company, getting to grips with this figure is essential, as it directly shapes your strategic opportunities and even your legal duties.
Think of it from an outsider's perspective. It’s one of the first metrics that lenders and investors look at. A strong, steadily climbing turnover tells them you have a growing customer base and you're successfully winning market share. It’s a clear signal of a healthy, expanding business—exactly the kind they want to back with a loan or investment.
Let’s make this real. A construction firm with a consistently rising turnover is in a far better position to bid for—and win—those larger, more profitable contracts. In the same way, a tech startup can point to its impressive turnover growth to attract the venture capital it needs to scale up. The number itself becomes proof that the concept works and the market wants what you're selling.
Your financial turnover is the primary indicator of your company's scale. It’s the metric that demonstrates your market presence and validates your business model to the outside world.
But it’s not all about chasing opportunities; turnover has serious compliance implications, too. In the UK, it's the sole metric that determines if and when you must register for VAT. Crossing that mandatory threshold brings significant administrative and financial changes, which is why turnover is a figure you have to monitor closely. You can find all the details in our complete guide to understanding the VAT registration threshold.
This figure is also a key economic barometer. For instance, recent ONS data showed that 17% of UK businesses expected their turnover to increase, a sign of cautious optimism filtering through the market. Trends like these influence wider investment decisions and even employment levels. You can read more about business insights from the ONS to see how these numbers shape the bigger economic picture.
Ultimately, your turnover connects the dots between your daily sales and your long-term strategic success.
While financial turnover is all about the cash flowing into your business, employee turnover is about the people flowing out. Think of it as a crucial diagnostic tool – a way to check the health and stability of your workforce. A high turnover rate isn't just an HR headache; it's a flashing warning light that could signal deeper problems.
Calculating your employee turnover rate is surprisingly straightforward and gives you an instant snapshot of your staff churn.
The Employee Turnover Formula
(Number of Employees Who Left ÷ Average Number of Employees) x 100 = Turnover Rate %
Let's say your company has an average of 50 employees throughout the year, and five people leave. Your annual turnover rate would be 10%. But that simple percentage only scratches the surface.
To get real insight, you need to understand why people are leaving. This is where digging into the difference between voluntary and involuntary turnover becomes so important.
Voluntary Turnover: This is when an employee makes the choice to leave. Maybe they’ve found a better job, decided on a career change, or are just plain unhappy in their role. High voluntary turnover often points to issues with company culture, management, or compensation.
Involuntary Turnover: This is when the company ends the employment relationship. This covers everything from redundancies and dismissals for poor performance to letting go of a new hire who just wasn't the right fit.
Understanding this split helps you pinpoint the root cause of your staff churn. Are your best people being poached by competitors, or are your hiring processes failing to bring the right people through the door? Answering that question is the first step to building a more stable, productive team.
Properly tracking these departures is also vital for managing your outgoings, a key part of our guide to payroll services for small businesses in the UK.
A revolving door of employees is far more damaging to your bottom line than you might think. While your business turnover is a measure of income, high staff turnover is a quiet drain on that very income, racking up huge costs that don't always appear on a spreadsheet.
The obvious costs are easy enough to track. You've got the fees for job adverts and recruitment agencies, not to mention the valuable time your managers spend sifting through CVs and conducting interviews instead of focusing on their actual jobs.
But it’s the indirect, hidden costs that really do the damage. These are the financial leaks that can slowly but surely cripple a team's performance and profitability.
When a seasoned employee walks out the door, they take a huge chunk of institutional knowledge with them – that invaluable, hard-earned understanding of your clients, processes, and unique ways of working. That loss sets off a chain reaction.
The real cost of replacing an employee is estimated to be anywhere from 50% to 200% of their annual salary. For an employee on a decent wage, that can easily run into tens of thousands of pounds.
These numbers make it crystal clear why investing in staff retention is so important. It's not just a "nice to have"; it's a critical financial strategy. Offering competitive benefits plays a huge part in this, and you can learn more by understanding how to calculate employer pension contributions.
At the end of the day, a stable, experienced team is one of the most powerful financial assets your business can possibly have.
When you look at your employee turnover rate, context is everything. A number that signals a crisis for one business might be completely normal for another. So, the real question isn't just, "What is our turnover rate?" but rather, "How does it stack up against others in our industry?"
Think about it. A software firm losing 30% of its highly specialised engineers in a single year is staring down a major problem. But a seasonal pub in a tourist town could see a similar rate and just call it business as usual. This huge difference comes down to things like the nature of the work, how easy it is to find skilled people, and what a typical career path looks like in that sector.
Getting to grips with these industry-specific trends is the only way to set realistic retention goals. Without that context, you could be celebrating a rate that’s secretly damaging your business, or panicking over a figure that’s perfectly standard for your field.
Employee turnover swings wildly across different UK industries. While the overall average is often quoted at around 35%, this number hides a lot of variation. For instance, sectors like retail and construction have historically seen much higher churn than finance or the public sector. Tracking your rate regularly helps you spot retention problems early and create fixes that actually work. You can discover proven strategies to reduce turnover on electriccarscheme.com.
To give you a clearer picture, here’s how some typical UK sectors compare:
This table makes it obvious why you need to measure your business against relevant industry standards, not just some generic national average. It’s the only way to get a true reading on what your turnover figures are really telling you.
Here are some quick answers to the questions we hear most often from business owners about turnover in the UK.
Not at all, and it's a critical distinction to make. Turnover is your top-line figure – the total cash generated from sales before a single expense is taken out. Think of it as the total amount of money that flows into the business from customers.
Profit, on the other hand, is what’s left after you’ve paid for everything – staff, rent, materials, marketing, the lot. It's easy to have a sky-high turnover but very little (or no) profit if your costs are out of control.
There’s no magic number here, as it really depends on your industry. For sectors like hospitality and retail, it's not unusual to see high annual turnover rates, sometimes over 30%, because of the nature of the work.
But in fields like finance or law, you'd expect to see much lower figures, often below 15%. The best approach is to stop looking for a universal "good" number and instead benchmark your rate against your specific industry average. From there, you can track your own trends over time.
A quick note on VAT: for any official accounting or reporting, your financial turnover should always be calculated exclusive of VAT. You're simply collecting that tax on behalf of HMRC, so it was never really your money to begin with. Your true turnover is the net sales figure.
The first step is always to find out why people are leaving. Confidential exit interviews are a great place to start. Once you understand the root causes, you can build a solid retention strategy.
Effective approaches usually include a mix of:
Getting a clear picture of your business's financial health is the first step towards sustainable growth. At GenTax Accountants, we help you turn confusing financial data into clear, practical insights, guiding you through everything from tax planning to performance analysis.
Explore our accounting services today and see how we can help.
