Turnover is vanity profit is sanity! You’ll always hear me saying this.Why? Because it’s easy to have £1m turnover and not much profit. You can be a busy fool, so the profit is of major importance.
Being an accountant I’m always around business people and I love to hear about their business. But as soon as I hear someone bragging about their turnover I get alarm bells ringing in my ears.
Don’t just set goals for your sales make sure you have a profit target as well. It’s really easy to make unprofitable sales – it’s called giving it away! What’s the easiest way to make a loss? Don’t charge enough for what your doing. So make sure you’ve got a really good handle on how long things take to produce or service. Look at your whole process and what’s involved.
It can be too easy to think about your profit in terms of an hourly rate and compare that to a salary. Remember if there’s only you in the business then you can’t spend 35-40 hours a week producing or serving your customers. You’ve got admin, you’ve got quotes, you’ve got meetings!
In general, one third of your time will be spent generating the money and two thirds doing everything else. Doesn’t look quite as generous now, does it? Set your profit targets and then work out how you can get there. And if you’ve got incredibly tight gross profit margins I would look at what you’re doing and ask if it’s worth all the hard work.
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