Turnover, Profit and Cash

Learn more about the interrelationships between these key business words!

Let us start with a quick overview;

Turnover is your revenue, or total value of invoices sent to your clients. This is your sales value. Increasing revenue is only worthwhile if it will generate a positive cashflow. Selling something for £100 that costs £110 is not good business and this is something businesses can become confused about!

Profit is the value of the invoice less the cost of items or time to deliver the product or service. For service businesses the time spent delivering the service is key to understanding your profitability. For some businesses calculating the cost of the service in total is very important to ensure prices are set at a level where enough cash is generated to pay your overhead costs. Also, for more modern businesses, how much is spent on online adverts to gain that extra sale is very important as well.

Cash is increased only when a client pays an invoice. You can send 100 invoices to clients but if no one pays then you will not have cash to pay wages at the end of the month. The old saying is - “Cash is King!”, this is and always will be the fact. Until someone pays you cannot pay someone else. The more cash you hold the safer your business is should a downturn occur. This is why the huge technology companies will come out as leaders after the COVID-19 pandemic as they held significant cash balances meaning they can pay their overheads for a longer period than their competitors and will be able to buy them out and take further control of the global marketplace. Apple holds around 700 billion in cash in the bank as an example.

Our approach to cash management is to provide guidance to our clients while they are growing their business. Ensuring you are collecting cash from your debtors on time thus allowing you to pay your creditors in good time as well. This creates good business relationships, key to growing your business. Never underestimate good relationships in business, people open doors through networking. If you grow your sales very quickly but then people pay late it causes internal cash stress. Managing cash through growth is one of the most important aspects of financial business management to avoid overtrading and going bankrupt.

It is worthwhile having a cashflow to plan and manage your business, having this coupled with Key Performance Indicators (KPI) will help ensure your cash is invested in the highest return activity. Being able to understand where your highest return is enables you focus on selling more of your higher return products or services. Lower profit jobs should be delivered at a lower cost or seek to increase efficiency to improve the profit per job or product.

If are interested to find out more about how we can help your business growth or cashflow, please contact our team.