Plasterer

If you’ve ever taken out public liability insurance, you’ll know that one of the questions asked is about your turnover.

We find that most tradies know what makes up their turnover, but for some it isn’t so clear.

So to clear it up once and for all we’ve put together this handy guide.

Turnover definition

Many people also refer to turnover as revenue.  The two terms are essentially interchangeable, especially when we’re talking about a trade business.

Broadly speaking, your turnover is the total amount of money that comes into your business.

For a tradie, this is basically all of the money that is paid to you by your clients, whether they be builders, private individuals or otherwise.

It doesn’t really matter how that money is spent.  Whether you use it to pay for materials, pay for staff or subbies, or just profit for yourself, it’s all regarded as turnover.

Subbies

One area were there can be some confusion for tradies is when subcontractors are being used.

The question is, is the money paid to subbies included in your turnover?

The answer depends on how the subbies are being engaged.

Scenario 1

If you are invoicing the customer for the entire job, and the subbies are then invoicing you for their work, then the full amount of the invoice to the customer is part of your turnover.

For example let’s say you invoice a customer $100,000 for a job, then your subbies invoice you $50,000 for their work.

The full $100,000 would be included in your turnover, even though half of it is being paid to the subbies.

Scenario 2

The second scenario is where you are using subbies on a job, however they are invoicing the customer directly.

You might class them as part of your ‘team’ and they may be working under your direction, however if they are invoicing the client themselves this amount is not part of your turnover.

For example the total job might be $100,000, with you invoicing $50,000 of your own labour and materials, and the subbies invoicing $50,000 of their own.

In this case only the $50,000 that you invoiced will be classed as turnover.

Materials

Another area that has potential for confusion is the provision of materials on a job.

Building Materials

If you are paying for the materials, then invoicing the client for the materials as part of the overall job, then the total amount is included in your turnover.

If on the other hand you are buying the materials on the client’s behalf, using the client’s money, then this amount is not included in your turnover.

It’s all about the invoices

Are you seeing a pattern here?

Ultimately, whatever is included in your invoice to the client is classed as your turnover.

If your invoice includes the cost of materials and subcontractors, then it’s all part of your turnover.

If you invoice does not included these items, then they are not part of your turnover.

Why is it important?

Getting your turnover correct is important when taking out insurance

When working out your premium, your annual turnover is a big part of how much you are charged for insurance.

If you declare your turnover as $100k per year, then when you make a claim it becomes evident that your turnover is more like $500k, you may run into some issues.

Of course you’re not going to be able to tell your insurance broker your exact turnover 12 months in advance, but you are expected to give a reasonable estimate.

If things change during the year and you sign some big new contracts which are going to significantly affect your turnover, it is important to let your insurer know.

Still unsure?

Not everyone is an accountant, so don’t feel bad if you’re still a little unsure about what amount you should be declaring as your turnover.

A quick chat with your accountant should clear things up, and they’ll be able to give you an idea of what amount you should be telling your broker.