Many self-employed people see turnover, profit and cash flow as the same thing. And yet they are actually three different financial aspects. Each of these terms has a different meaning and impact on your business. In this article, we would like to explain to you what they mean, why they are important and how you can calculate them as a ZZP'er.
What is turnover?
Turnover is the total amount you earn by selling products or services, not including costs and taxes. Turnover is at the top of your income statement and is often used as an indicator of how your business is growing. The higher your turnover, the more money coming in. But that does not automatically mean your business is profitable.
Turnover calculation ZZP
Calculating your turnover is easy. Use the following formula to do so:
Turnover = number of products or hours sold x selling price
Sample turnover calculation
Suppose you have an online shop and sell 200 products every month for €25 each. Then you calculate sales as follows:
200 x €25 = €5,000 turnover per month
It is good to remember that turnover is not the same as profit. From this amount, all kinds of expenses and taxes still have to be paid.
What is profit?
Profit is the amount remaining after deducting all your costs from sales. This is an important measure of how profitable your business is. You may have a high turnover, but if your costs are also high, your profit may still be low (or even negative).
Calculating profit ZZP
To calculate your profit, use the following formula:
Profit = turnover - costs
Example: Suppose you have a turnover of €5,000 and your costs (such as rent, software, marketing and other business expenses) are €2,000. Then your profit is:
€5,000 - €2,000 = €3,000 profit
Example profit calculation
Let's take a more comprehensive example. You work as a freelancer and achieve the following results:
Turnover: €10,000
Costs: €4,000 (e.g. office space rental, software, business lunches and travel expenses)
Then calculate your profit as follows:
€10,000 - €4,000 = €6,000 profit
What is the difference between turnover and profit?
Turnover is the total amount you earn, while profit is the amount left over after deducting all costs. This means that high turnover does not always equal high profit. Say you have a turnover of €50,000, but your costs are €48,000. Then you are left with only €2,000 profit. If your costs are higher than your turnover, you will even make a loss.
Therefore, it is important not only to look at your turnover, but also to have a good understanding of your costs. A company that makes a profit not only has a healthy turnover, but also keeps enough profit to grow and invest.
What is cash flow?
Your cash flow is the flow of money going in and out of your business (aka cash flow). Cash flow shows how much money you have within your business to spend. Whether that is in your bank account or cash: it doesn't matter here. A positive cash flow means you have more money coming in than you are spending. A negative cash flow means you are spending more than you have coming in.
Cash flow calculation ZZP
Cash flow is the flow of money going in and out of your business. It indicates how much cash (cash and bank balance) you actually have available. This is a crucial factor in the financial health of your business.
A positive cash flow means that you get more money in than you spend, giving you enough resources to make investments or pay bills, for example.
Negative cash flow means you spend more than you bring in, which can lead to payment problems even if you are profitable.
Example cash flow calculation
Suppose you have the following financial data:
Turnover: €8.000
Cost: €3.000
Outstanding invoices: €2,000 ( this is money not yet paid by customers)
You then calculate your cash flow as follows:
(Turnover - outstanding invoices) - costs
(€8.000 – €2.000) – €3.000 = €3.000
This means that you have €3,000 of cash available. This is the amount you can actually use for investments, taxes or other business expenses, for example
Why are these concepts important?
As a self-employed person, it is important to have a good understanding of these three financial concepts:
- Turnover shows how well you sell, but says nothing about your profitability.
- Profit shows how much money you are really left with after deducting expenses.
- Cash flow determines whether you have enough money available to pay your bills on time.
By properly understanding and calculating these concepts, you can make smarter financial decisions and keep your business healthy.
