50% of romanian businesses die in the first 42 months of operation.
If they manage to pass this threshold and exceed the start-up status, they start to grow organically at the pace imposed by market and management conditions.
Turnover thus becomes a first indicator pursued by management, and its growth becomes an objective of the entire structure. Based on it, the prizes for the obtained results are divided, the market shares are calculated and the plans for the future growth are made. However, the turnover is an indicator that, viewed in its singularity, only creates an incomplete and often inflated image on the business we observe.
In fact, we can never talk about Turnover without talking about its profitability, both in percentage and in absolute value. In other words, it is wonderful that we generate a turnover with a staggering trend of growth, but we are on the road to stability only when the relationship between Profitability and Turnover is a directly proportional one.
TIP no.1 – “Always Analyze Turnover with Profitability Indicator”
The graph of a cumulative turnover (Month1 + Month2 + Month3), will always look like a vector with a nice growth trend, simply because no matter how little we sold in M2, the cumulative value of M1 and M2 is greater than the one in M1. Thus, this kind of visual verification and monitoring of the results can only determine the growth rate from one month to another and compliance with a growth target.
The graph of a Turnover analyzed comparatively month by month will respond much more clearly to the comparative evolution of the periods, and the visual impact will be a clear and simple one.
TIP no.2 – “Analyze the Turnover for different periods not as a cumulative value”
The increase in Turnover is an indicator of an increase in the overall volume of the business and therefore there is a need to link its growth to the increase in internal capacity. The scalability of a business is exactly the ability to control growth to allow its structures, processes, technologies, and know-how to adapt to the new dimensions of the business.
About the scalability of a business, full books are written on this subject, but the basic principle is very simple. You cannot build new floors of a house without consolidating the foundation and without having a resistive ceiling.
Using an aphorism, when the income from your business is 50,000 euros and you fall from the top of a building, you regroup and take it over. From the top of a construction of 25 million euros you do not fall, but you collapse. The possibility of having “floors” in your business, prevents a possible fall or even diminishes it, from 25 Million euros to x Million euros, from where the regrouping becomes possible again.
TIP no.3 – “Increase Turnover in floors and levels”
The graph of growth in levels is our example of sustainable growth that we hope all entrepreneurs achieve
Lots of financial health!