We regularly have the discussion with clients about why the focus should not just on revenue. Revenue is important, for sure, but we prefer to focus on a client’s bottom line. The profits.
Revenue numbers can make great headlines and business owners justifiably feel good about seeing their hard work reflected in the headline number. However, revenue can hide threats to a business’ survival, hide weaknesses.
When things are going well, revenue is usually on the rise and it is very easy for business owners and managers to relax a bit and take their eye of the ball because there is plenty of money to pay the bills and return a nice profit to owners.
However, what happens if things start going the other way?
No matter the business conditions, it is important to ensure a business is operating efficiently. This can be ensuring all cost centres are monitored, the number of employees is appropriate and each employee is pulling their weight.
If retail store has to pay more for their stock but fails to increase what they charge in line with the cost increase, the business can be making more profits overall but the business is not necessarily in good long-term shape.
If revenue increases by 5% but costs increase by 10% this is clearly not good news.
We have had clients chose to deliberately reduce the size of the business. Some have done so because the stresses of employing staff has become more than they were wanting to handle. Others to free up time for a variety of reasons.
Some businesses make more profits by being lean and mean small operators doing what they do extremely efficiently due to the skill and knowledge of the owner.
As accountants, we want to see our clients achieving their goals, whatever they may be. For some it is revenue. For others, the number of staff employed. For others it could be profits or the number of days they work or the ability to take regular time off to engage other passions. Whatever your goals are, go for it. Just don’t let revenue define you or your business unless that truly is your goal.
If you would like assistance reviewing your business and help assessing areas where you can be more efficient we encourage you to get in touch