Understanding Your Numbers is Key
When you are scaling a business, and it’s and you’re getting more turnover, that does not mean that you are going to make the same amount of profit. What you really need to do is understand your numbers and what actually drives profit. Turnover is one key element, but it’s not the whole picture.
Watch my video or read below to find out more!
A Case Study
We work with lots of recruitment companies at MDH. Recruitment companies typically have lower margins, around 10-30% gross profit. We had one 5-year-old recruitment business that had achieved £5 million in turnover. With 20% margins, that’s £1 million in gross profit. For a small business owner, earning £20k monthly is a success.
But this business grew by cutting prices and costs. That eradicated their gross margin from 20% to just under 10%. They earned a gross profit of just under £500k, but with high overheads, they were actually losing money. All the sales calls and efforts to win new business resulted in more debt, not profit.
Regularly Reviews
Many small business owners understand their accounts, but some education is patchy. When rapidly scaling up, you need to make key decisions about staff, suppliers, and outsourcers. If you lack financial knowledge, bring in experts to help and avoid losses.
You don’t need to be an accountant, but understand your P&L, balance sheet, cash flow and budgets. Review your numbers regularly to make informed decisions and turn losses into profits. You’re busy fighting fires as a business owner, but take time to review operations and finances.
Get Help
Leverage financial staff already in your business for advice. If you need more support, ask an accountant or business coach to review your numbers. They can connect your finances to your business goals and provide recommendations.
Regular reviews will lead to a successfully growing, profitable business. Even if you’re making losses now, with some help, you may be able to generate profits and amazing growth going forward. A little guidance can fundamentally impact your long-term wealth.
Key Takeaways
- Rapid revenue growth alone doesn’t guarantee higher profits. Manage costs and efficiency as well.
- Regularly review critical financial reports like P&L and Cash Flow when scaling up.
- Leverage knowledgeable finance staff or get help from advisors. Their expertise pays off.
- With diligent financial management, rapid growth can be incredibly profitable.
By keeping a close eye on the numbers, you can scale your business to new heights while also maximising profitability. The key is finding the right balance between controlled expansion and operational efficiency.
If you’re looking for an accountant you can rely on as your business grows, we’re here to help. Managing the numbers doesn’t have to be a mystery. Book a free 30-minute discovery call with me to discuss your business goals and get insights into maximising profits. We’ll review your finances and map out a plan to support your vision.
Growth requires the right financial fundamentals, so start the conversation by scheduling your free consultation today!
