Turnover for show, profit for dough

Turnover for show, profit for dough

It’s interesting when you think that the majority of people, having been asked the question, “how well is your company doing” or “how big is your company” would probably quote a turnover figure or number of employees. “Hey, I’m Billy big banana’s because I’m turning over 5m a year”, or “Yes, I am the man/woman, I have 100 employees”! I wouldn’t be surprised if the percentage of people in that scenario giving one of those two answers is in the 90%+ region. So how many give you their profit figures or margins? Not that many, maybe because they feel they don’t want to give away sensitive data and there is certainly a case for that but I just find the metrics we all seem to monitor our companies by publically to be a bit farcical.

Lets take a quick example – A 5m turnover company producing a profit of 100k and a 500k turnover company producing 80k – which would you rather have? I know which one I would! Think of the work required, the staffing, the redtape in the 5m turnover business all for just another 20k profit – starting to make sense? Yes I realise that small margin businesses could churn out a scenario like the one above comfortably but I’m trying to give a more general overview for the purpose of this post.

I also think, and this is the main reason for writing this post, that this whole topic has the potential to be a danger to young start-up’s who get caught up in their own hype – thinking they are doing well because of the inflated figures and then coming a cropper because they’ve not concentrated on what’s really important.

So, be careful of not getting caught in the trap of thinking success is in Turnover or how many staff you have. I’ve made that mistake myself on a number of occasions. To be fair, it’s quite easy in our industry to flatter your turnover figures because more often than not digital agencies will pay for online advertising on behalf of clients (services like Google Adwords) then simply bill this straight back to the client. This has the effect of inflating your turnover but doing absolutely nothing for your bottom line. If you’re in digital and want my advice, then I’ve tended to stay away from this altogether as it can cause cash flow issues and as we know “Cashflow is King

It’s vital in any business to keep an eye on management figures regularly. If you’re anything like me, in the early days you’ll probably know everything off by heart because you’re staring at it everyday. As you grow I recommend having monthly management meetings where you keep an eye on cash flow forecasts, monthly P & L’s and breakeven charts. Together, these figures give you a good snapshot of where you are as a business.

Stay on top of the numbers – don’t stick your head in the sand and hope they are not there…

Have a great week

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