In the world of business, the markers of success are often painted in broad strokes of turnover and revenue. However, a deeper dive into business sustainability and growth reveals a starkly different picture. It’s not the dazzling numbers at the top line that guarantee a business’s longevity but what’s left once the curtains of expenses fall.
This insight, often overlooked, is crucial for steering clear of the iceberg that sinks many ventures prematurely: financial insolvency.
The allure of high turnover is undeniable. It speaks to busy production lines, a bustling workforce, and a market presence that feels rewarding. Yet, this glittering façade masks a perilous truth: turnover, on its own, is a hollow metric. It’s akin to celebrating a packed restaurant without accounting for the costs of ingredients, staff, and utilities. The real question isn’t how much you’re making but how much you’re keeping.
What remains after all expenses have been accounted for – the “leftover”, as it were – is the true indicator of a business’s health. This leftover is what enables a business to invest in growth, innovation, and, yes, the occasional luxury. However, a high turnover with slim or negative margins is a recipe for disaster, a harbinger of cash flow crises and, ultimately, insolvency.
The first step towards prioritising profitability is understanding your business numbers inside and out. This means not just celebrating sales but scrutinising the costs of goods sold, operational expenses, and overheads. It’s about knowing which products or services offer the best margins and focusing your efforts there.
Equally important is the relentless control of costs. This doesn’t mean penny-pinching at the expense of quality or growth but making smart choices where expenses are concerned. Sometimes, this might mean renegotiating with suppliers or choosing more cost-effective marketing strategies.
Profitability allows for investment in areas that can spur further growth: research and development, marketing, and talent acquisition. These investments can create a virtuous cycle, where increased efficiencies and innovations drive higher profitability, which in turn fuels more growth.
Have you experienced the turnover trap? If you need help to ensure your focus remains on profitability, book a FREE consultation where we can discuss the issues and formulate strategies to resolve them. You can book here.
Brent is the Director of Norling Law. He has a wealth of experience in the District Court, High Court, Court of Appeal and Supreme Court. Brent is passionate about negotiating favourable outcomes for his clients and able to implement this in his daily negotiations.
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