❌ Difference #7
Confusing turnover with profit
‘I've made €150,000 in revenue this year, so I'll be able to pay myself a good salary.’
‘I don't understand, I've collected lots of invoices... why is my cash flow dry?’
🤯 These phrases are often heard from managers, especially in the early years. However, turnover does not equate to profit!
This is the total amount of all sales of goods or services that you have invoiced over a given period (excluding taxes).
But there's a world of difference between what you charge and what you actually end up with in your pocket.
Why it's important
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 expenses: rent, salaries, software subscriptions, travel expenses, insurance, etc.
👉 These are unavoidable costs that weigh heavily on the bottom line.
3. The director's social security contributions: often miscalculated, they eat into net profits.
👉 They are not always immediately apparent, but they do happen.
4. Corporation tax (IS) or income tax, depending on the chosen regime.
5. Investments (computers, equipment, vehicles, etc.) that weigh on cash flow... but not always immediately on the bottom line (as they are depreciated over several years).
📊 Turnover ≠ Cash flow ≠ Profit
Concept | What it is | Is it available to pay me? |
Turnover (excluding VAT) | What you charge | ❌ 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
👉 We do not get paid on what we invoice,
👉 We get paid on what's left after all expenses.
🧮 A concrete example
- Turnover excluding VAT: €150,000
- Purchases + expenses: €90,000
- Salaries and social security contributions: €15,000
- Pre-tax profit: €45,000
- Coporate tax (15%): €6,750
- Net profit: €38,250
👉 Only then can a dividend payment be considered. And even then, there must be enough cash available to do so without jeopardising the company's operations.
What we recommend
- Never rely solely on turnover to assess the financial health of a company.
- Regularly monitor a simple dashboard: turnover, margin, expenses, profit, cash flow.
- Ask your accountant to prepare a projected income statement for you, so you can see what you will actually have left at the end.
- Use a management tool or a customised Excel spreadsheet to anticipate upcoming payments (VAT, contributions, salaries, tax, etc.).
👉 And above all : we have introduced an annual summary report at the firm, which is reviewed together before the final approval of the balance sheet. This report allows us to take a step back and:
- Analyse changes in turnover and cash receipts.
- Identify key customers and suppliers (and their importance to the business).
- Calculate the actual margin generated,
- Calculate the cash flow (cash flow),
- the customer payment period,
- le délai de règlement client,
- le délai de paiement fournisseur,
- le nombre de jours de CA immobilisé dans le 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 aggregates:
- Cumulative turnover,
- Released margin,
- Projected result at the end of the financial year,
- Cash flow situation and potential areas of concern.
This quarterly report enables the manager to monitor the following during the year:
- Decide whether or not to pay a bonus,
- Mediate a strategic purchase (new asset, production tool),
- Launch a new communication campaign,
- Or, conversely, implement cost-saving measures if the situation warrants it.
The expert's tip
You should not reveal your margin at the time of the balance sheet.
At that point, it is often too late to take action.