Turnover is Vanity But Profit is Sanity!

My company had a turnover of £190k last year, so you can see I have been really successful.

I overheard this from a well dressed gym owner businessman to his friend, in my local gym the other day but did not say anything. However, it did get me thinking.

Why do people focus on the turnover of a business?

What is it about quoting large figures that gets people excited?

I wondered if large numbers equated in peoples minds to a measure of wealth, or whether it was just like the feeling of what you could spend money on, when you hear the lottery is a £15 million rollover. Is it just greed?

Possibly not greed, but I guess we are all sub-consciously impressed by large figures. It is however, not always the most practical approach for a business.

We can spend large amounts of time chasing that elusive contract that will see our turnover top £1m next year. We become blinded by the chase, the thrill of signing another deal, or the sight of the first payment in to our bank account.

What is very easy to overlook is that increased turnover almost inevitably means an equal increase in costs. Extra staff to deal with the increased demand, additional resources in machinery and systems that the increased workload make necessary. This is where the dream of turnover can become a nightmare of reality.

When we take a closer look at the accounts 2 months after the first income from that hard won contract, it is obvious that there have been huge outgoings servicing this new contract. The pride you felt after you had clinched the deal has been replaced by a fear that the business is now growing out of control and the finances are overstretched, perhaps almost at breaking point.

What if the bank calls in the loan that you took out to replace the old equipment that coped with 2 orders a month but would not deal with the 6 that you need to deliver for the new contract? What will happen to the new staff that you have taken on to fulfil the order?

All of these are situations that really do happen, and not just to other people.

So in any business it is far better to concentrate on the item that really matters, the profit margin.

This can obviously be affected by many different factors but if you spend time concentrating on keeping the overheads and spending within the business in control, this will pay huge dividends by way of an increased profit margin.

So, in summary look after all aspects of your business but pay particular attention to the spending that goes hand-in-hand with growth.

Then you can help ensure that when you talk to your mate in the gym you can deliver the much more impressive line, I increased the profits in my business by 15% last year.