Turnover Is Vanity, Profit Is Sanity: 9 1/2 Steps to Improving Your Profits & Cashflow

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Unfortunately I wasn’t able to find the origin for this great business quote. It sounds so simple and obvious, yet its interpretations are profound. Those businesses and leaders that focus on it continue moving forward, those that don’t, well, they are probably no longer in business or are about to struggle. Net profit is something to be accrued for rainy days if possible e.g. seasonal fluctuations. Where this proves difficult, finance may be an option to level the variations It is common for business owners to lament to me that they don’t comprehend why their company is making good profit and yet doesn’t reflect in the bank balance. My advice to them would be for them to understand the 4 chapters of the cash flow story. Recognizing all 4 chapters of your company’s cash flow will allow you to reconcile to its profit as illustrated below:

That means, making sure all of the units are correct, the trims have been calculated accurately, the worktop colour chosen is the right one, and all of the appliances are either listed on the quote or marked as “customer’s own” on the plan. Turnover is known by a few names: sales, revenue and even income. It’s the amount of money a business makes before subtracting any expenses.

Chapter 7 looks at defining your ideal clients based on Pareto 80/20 principle doubled ( the top 20% of your top 20%). This is also a quote with a disputed origin. But, what’s undebatable is how visualizing your cash flow with a tool, like our cash flow forecasting and risk assessment, helps you see your cash flow in an entirely new light. Humankind was not created to manage by spreadsheet alone. In fact, most studies prove that people really are visual learners. “Money is a terrible master but an excellent servant.” In those cases, “gross profit” might be a better indicator since that figure does not take into account expenses that are actually growing the business, like marketing, equipment etc.

Finally, perhaps the most accurate and representative financial number, is that of Cash and Cashflow.A critical question to periodically ask is, “How much money is there in the bank?”. In times of turbulence, cash can bring peace of mind. New entrepreneurs may see profit as a marker of a successful business, but cash flow is what keeps the lights on. This is a more accurate marker of your company’s success in its early stages than the amount of money you bring in, as profit only tells one part of the story. Make sure all related costs are included – watch out for additional variable costs like postage, delivery, haulage, sub-contractors, equipment hire etc. and cost out any permanent increase in fixed costs (overheads) like additional staff, premises, IT &technical support, vehicles, insurances etc.

As always, the questions are 1) are you doing it and 2) are you continually looking to improve the weakest element? Businesses often talk about “having a cash flow problem” when what they have is a profit problem i.e. they aren’t making any or its being eaten up by the drawings of the owners. But its trendier (and perhaps easier to admit than the truth) to say that you have a “cash flow problem”. If it’s a profit problem then there are whole load of other issues link to the improving your profit article that need to be considered which are not the purpose of this article. what happens to the the cash surplus. You could keep it safely in the business, it could be reinvested in the business with capital expenditure and even acquisitions or you could take it out as extra money to fund your personal lifestyle. Since the Credit Crunch, it’s fashionable to criticise the bankers and they certainly deserve some of the criticism they get. They would have done well to remember their own mantra.Refers to the net sales of a company generated through business transactions during the financial year. The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. But it is cash that is reality. Unless that fabulous new customer actually pays you, in full and on time, they are not a fabulous new customer at all. Does it cost you a huge amount in time, energy and resource to chase and chase and chase that new customer to get the money out of them? Without that cash coming through the door, how can you pay your staff salaries and bonuses and all the suppliers you owe money to? How can you invest in any future growth? Cash is reality because your business cannot exist without money coming in from your new and existing customers. Even if you are profitable, you will not survive if the cash doesn’t come in. And so I find myself cautioning disbelieving owners, celebrating a massive temporary PSA win for example, that they need to reject the contract. “ But it’s worth nearly a million dollars!” they cry. “ We have to do it!” So now you raise your first sales invoice to your exciting new customer. Your turnover, which is also known as income, revenue or sales, looks fantastic. Well done! Profit is Sanity

The Wu-Tang Clan are perhaps known more for their genre-defining art than their financial acumen. But C.R.E.A.M. remains as salient today as it did when the song (and acronym) first dropped on Enter the Wu-Tang (36 Chambers) in 1994. To paraphrase band leader RZA, without positive cash flow, “You [can’t] punch your way out of a wet paper bag with a pair of scissors in your hand.” It simply means that while the massive sales turnover looks impressive, there is rarely a commercial benefit to this unless it creates the profit.When you put together your contract for the customer, make sure every single aspect is covered, so that they know exactly what they are getting for their money and, more importantly, the things they are not getting. As anticipated due to the timing of Easter and the fact that the weather was glorious, retail sales figures for April were strong. The British Retail Consortium (BRC) reported that total sales were up year-on-year by 4.1% and like-for-likes were ahead by 3.7%. As ever, the BRC downplayed its own numbers by saying that they were somehow “below expectations”. The official retail sales numbers released by the ONS next week are likely to be stronger still. According to the Companies Act 2006, Turnover is “The amount derived from the provision of goods and services after deduction of Value added tax (VAT), trade discounts, and any other taxed based on the amounts so derived.”