‘Turnover is vanity, profit is sanity, but cash is reality’ is a popular saying you may have heard before.
The idea being that showing a high turnover isn’t as important as ensuring the business is profitable, and that isn’t as important as ensuring that profit converts to cash in the bank.
We feel this saying is overused and oversimplified.
It isn’t the figures on their own that are important, but the correlation between them and the overall business trend.
Your turnover could be increasing, but if your margins are getting squeezed profits could be going down. At the same time, if you are delaying paying your suppliers cash could still be strong.
Each of these figures in isolation could indicate business performance, but the correlation between the three tells a story about your business. With the right information, you can affect and change that story.
It is important to drill into your numbers in detail, spot trends early, understand why those trends are occurring and forecast the business performance if those trends continue or if you can change those trends.
If you need help drilling down into the detailed performance of your business, please contact us here.