Turnover, profit and cash flow: these are the differences

What is turnover? 

Turnover is the total amount your business earns from the sale of products or services in a given period. It is the first figure at the top of your income statement and says something about the scale of your operations. 

You calculate turnover with a simple formula: price × sales. That means the selling price times the number of products or services sold. So sales gives the total of what comes in before deducting costs. 

Higher sales can come about because you: 

• Sells more; 

• Higher prices charged; 

• Or tap into new markets. 

But beware: high turnover does not automatically mean you make a profit. If your costs are rising fast at the same time, you won't be left with much. 

Sample calculation 

If you sell 100 products at 50 euros each, your turnover is 100 × 50 = 5,000 euros. That amount shows how much total comes in from sales, but still says nothing about what you are left with after expenses and taxes. 

Turnover and VAT 

Turnover is always calculated excluding VAT. You pay the VAT you charge customers to the tax authorities via the VAT return. Say you have a turnover of 5,000 euros with 21 per cent VAT, then you invoice 6,050 euros. The extra 1,050 euros belongs to VAT and is therefore not your turnover. 

If you have an annual turnover of less than €20,000, you can use the small business scheme (KOR). You then do not charge VAT, do not have to file a tax return, but also cannot reclaim VAT on your expenses. 

What is profit? 

Profit is the amount left over from your turnover after you have paid all expenses. It indicates how profitable your business is. You can look at profit in three steps: gross profit, operating profit and net profit. 

Gross profit 

Gross profit is your sales minus direct costs. These are the costs directly related to your sales, such as purchase of goods or material costs. It shows how much margin you have left per product or service sold. 

Operating result 

Operating profit is calculated by deducting from gross profit your other operating expenses, such as rent, insurance, administration, marketing and depreciation. This figure shows how profitable your business activities are before tax. 

Net profit 

Net profit is what is ultimately left after you have also paid taxes. This is the amount you can withdraw or reinvest in your business. So net profit says the most about your actual earnings. 

Sample calculation 

Net profit is what is ultimately left after you have also paid taxes. This is the amount you can withdraw or reinvest in your business. So net profit says the most about your actual earnings. 

Suppose you have the following figures in one year: 

• Turnover: 400,000 euros
• Procurement costs: €150,000
• Other costs: €160,000
• Tax: 20,000 euros

That leaves you with: 

• Gross profit: 250,000 euros
• Operating income: 90,000 euros
• Net profit: €70,000

That 70,000 euros is your real profit, which you can withdraw or invest. 

Difference between turnover and profit 

Turnover and profit are often mixed up, but they mean something completely different. Turnover is the total amount that comes in, profit is what you are left with after expenses. 

An example: you can have 100,000 euros in turnover and still make a loss if you spend 110,000 euros. Conversely, a modest turnover can actually be profitable if your costs are low. 

In short: turnover shows how much you sell, profit shows how healthy your business is. 

What is cash flow? 

Cash flow is the difference between the cash you receive and the expenses you incur within a given period. Where profit is mainly accounting, cash flow looks purely at money actually coming in and going out. 

You can make a profit and still have negative cash flow, for instance if customers pay late or if you invest a lot. So cash flow determines whether you have enough liquidity to pay your current liabilities. 

Positive cash flow 

A positive cash flow means more money comes in than goes out. This gives room to invest, pay off debt or build up a financial cushion. 

Sample calculation 

You will receive 30,000 euros this month and spend 20,000 euros. 
Meaning: 

• Money received: €30,000 

• Expenditure: 20,000 euros 

• Remaining amount: €10,000 positive 

So you have plenty of room to invest or reserve. 

Negative cash flow 

Negative cash flow occurs when more money goes out than comes in. This can be temporary, for example due to large investments, but also a structural sign of financial pressure. 

Sample calculation 

You receive €20,000 but spend €30,000. 
The situation then is: 

• Money received: €20,000 

• Expenditure: 30,000 euros 

• Deficit: 10,000 euro negative 

You have to make up that shortfall with savings or a loan. 

Why are these concepts important? 

Turnover, profit and cash flow together form the core of your financial insight. They help you understand how well your business is performing and where risks lie. 

• Turnover tells whether you are selling enough. 

• Profit shows whether you are working efficiently and keeping money. 

• Cashflow determines whether your business is financially sound in the short term. 

By tracking these figures, you can better plan, invest and make timely adjustments. They also form the basis for your returns and reports to the tax authorities, bank or investors. 

Frequently asked questions