All about the bottom line
A wiseman once told me, "turnover is vanity, profit is sanity."
What does this mean? Quite simply, there is no point turning over £1 million in sales if you have no profit to show for it.
So, my biggest question to my clients is: do you know how much profit you're making?
Net profit - which is the one that counts - is your income minus ALL your costs. You should know what this, at a minimum for each month you're trading. If you don't know this, it's time to do some sums. Start with looking at your profit for the full year, then look at it by month. Which months were your most profitable? Which were your least?
Once you have a sense of your profit, it's time to calculate your profit percentage. Take your net profit number, divide by your income, and then multiply by 100. You will end up with a percentage which could be anything from 5% - 90%, depending on your industry.
And here's the thing - you need to know what your target net profit percentage should be. If you run a retail business, you'd hope to get 15-20% net profit. A consultancy business would be closer to 80%. The airline industry generates 5% net profit.
Talk to your peers to see if they are willing to share their net profit percentage. Do some research. How do you compare? If you are overperforming - great! Now you can focus on growing your sales. If you are underperforming, it's time to scrutinise your costs, as this is what will be dragging your percentage down.
When we're busy running a business, it's easy to overlook spending time on your numbers. This is such a mistake - your net profit percentage is your single biggest indicator of the health of your business.
Remind yourself to focus on your bottom line: how much money are you actually making. And then take action.
If this is out of your comfort zone, or you've done your sums and realised your profit is too low, why not book in for a Business MOT? I can help you work through your figures and come up with a plan: Business MOT