❌ Differrence #7
Confusing Turnover with Profit

“I’ve made €150,000 in turnover this year, so I’ll be able to pay myself a decent salary.”

“I don’t understand – I’ve collected loads of payments… so why is my cash flow dried up?”

🤯 These sentences come up all the time among business leaders, especially in the early years. And yet, turnover does not equal profit!

It is the total value of all sales of goods or services that you have invoiced over a given period (excluding tax).

But there’s a world of difference between what you invoice and what you actually end up with in your pocket.

Why it matters

Because it hides:

1. VAT: the invoice includes VAT, but the company only keeps the amount excluding VAT.

👉 The VAT collected does not belong to you; it must be paid to the government.

2. Operating costs: rent, salaries, software subscriptions, travel expenses, insurance, etc.

👉 These are fixed costs that eat into the profit.

3. The director’s social security contributions: often underestimated, they eat into the net profit.

👉 They aren’t always immediately visible, but they do come due.

4. Corporation tax (CT) or income tax, depending on the chosen tax regime.

5. Investments (computers, equipment, vehicles, etc.) which put pressure on cash flow… but do not always immediately affect the bottom line (as they are depreciated over several years).

📊 Turnover ≠ Cash flow ≠ Profit

Term	What it is	Is it available to pay me?
Turnover (excluding VAT)	What you bill	❌ No
Cash flow	The money actually available in the bank	❌ Not entirely
Net profit	What remains after paying for everything	✅ Partly, if you distribute it
Distributable profit	Result allocated by the General Meeting	✅ For dividends (please note the formal requirements)

💡The golden rule

👉 You don’t pay yourself from what you invoice,

👉 You pay yourself from what’s left after all expenses.

🧮 A practical example

Turnover (excl. VAT): €150,000
Purchases + expenses: €90,000
Salaries and social security contributions: €15,000
Profit before tax: €45,000
Corporation tax (15%): €6,750
Net profit: €38,250

👉 It is only at this stage that a dividend payment can be considered. And even then, there must be sufficient cash flow available to do so without jeopardising the running of the business.

Our guideline

Never rely solely on turnover to assess the financial health of your business.
Regularly monitor a simple dashboard: turnover, margin, expenses, profit, cash flow.
Ask your accountant to prepare a projected profit and loss statement so you can see what will actually be left at the end.
Use a management tool or a customised Excel spreadsheet to anticipate upcoming outgoings (VAT, contributions, wages, tax, etc.).

👉 And above all: we have introduced an Annual Summary Report at the firm, which we review together before the final approval of the balance sheet. This report allows us to take a step back and:

Analyse the trend in turnover and cash receipts,
Identify the main customers and suppliers (and their share of the business),
Calculate the actual margin generated,
Determine the cash flow from operations (CFO),
Assess the working capital requirement (WCR) through:

customer payment terms,
supplier payment terms,
the number of days’ turnover tied up in stock.

But we don’t stop there. ✅ To give the manager a clear and responsive overview, we have taken the initiative to send a simplified report every quarter. It includes the key figures: