Show me the Profit11th May 2016
In fact they’d just broken the £1 million mark, and by the sound of things, they were going to grow even faster the following year.
And the full horror revealed itself.
Unfortunately, while their turnover had grown by leaps and bounds, so had their expenses. By the time we accounted for all their overheads – including admin costs, some extra contractors, raw materials and more – there was virtually no profit left.
“But I don’t understand!” He repeated several times. “We’ve brought in more this year than ever before. How is that possible?”
Unfortunately, he was making a common error, confusing turnover and profit.
While most of us understand the difference in theory, it’s very easy to get wrong in practice.
Others believe they know where the profits lie in their business, but are wrong. Your white widgets might have been your most profitable item last year – that doesn’t mean they are this year, if the cost of your raw materials or staff has crept up.
Or perhaps no one has ever calculated how much this product or service really costs to deliver, once you look beyond headline costs.
Do you know where the profit lies in your business?
If you know which of your products and service is delivering profit – not just income – you can focus on them. Then take your loss-making projects, and either work to make them more profitable, or if that’s not possible, drop them.
Conduct this exercise regularly, because business conditions change all the time.
And keep your eye on the prize. Would you rather run a £1 million company that was profitable, or a £5 million company that was not?
To really grow, focus on profit, not on turnover.