Focus On Profits Not Revenues!
At some point every business risks falling into a Black Hole. A black hole is when a firm’s revenue first surpasses €100,000 and there’s an increased demand for staff but not enough capital to pay for new employees. If you want to escape the black hole you have to aim for 10 to 15 percent pre-tax profitability. To put it another way getting through a black hole is like driving from Donegal to Kerry. Even if you fill the tank from the start if you guzzle fuel too quickly without adding more as you go (or if you incur losses but don’t build profits as you grow), you’ll never make it to Killarney!
That’s precisely why your goal should be to accrue healthy profits while you grow. Focus on profits. By reinvesting profits and building your capital reserves you’ll make it through that black hole. The benefits of being profitable while you’re in a black hole don’t end when you get out of it. If you decide to sell your business, historical profitability will have a significant effect on your company’s value. Prospective buyers will want to see your last three years of pre-tax profits and business equity (a widespread measure used to gauge a company’s value). As a result a company that has achieved 10 to 15 percent pre-tax profitability will have a substantially higher market value than another firm with smaller profits or none at all. After all every business owner wants to achieve the best optimal market value for their company (whether for sale or IPO).
Contact Us at Avid Partners on 0818 303087. Email us at advice@avidpartners.ie. We love to hear from small businesses and how they are doing! We can help you focus on profits!
Extracts from Simple Numbers, Big Profits. Blinkist Blog
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