If business was easy everyone would do it. Every business has key performance indicators that need to be carefully controlled and managed.

Let us look at some of them.

Turnover, profit and cash flow….
There is a saying that Turnover is vanity, Profit is Sanity and Cash flow is reality…. Why would this be the case? Let us have a look into it.

The true meaning of Vanity is the quality of being worthless or futile…
In business this most definitely can be true.
Turnover becomes vanity when profit and cash flow do not realize from it. Turnover alone is simply not sufficient to sustain a business if the cost element making the sale possible (cost of sales or variable cost) as well as the overhead sunk costs are not being controlled. Why would any business owner want to be in business not to make profit or even worse, make losses from trading? A business has only one purpose and that is TO MAKE MONEY. Money for all stakeholders and the stakeholders being Staff, Shareholders, Clients, Suppliers, Community.
Making a profit is where the sanity bit comes in. It literally is insane to be in business to make losses. There is no wealth being built from losses and it will literally drive anyone insane to invest a lifetime of effort into something that is dying all the time. Fruit of the effort in business lies in the sanity of profit.

Right, so now that we have turnover and profit, does this mean we have a business that is working? Not yet. Cash flow is the reality at the end of the day. Up to the point where we report on the profit line, we have a paper business, but it becomes reality when the cash is in the bank account. Why do I say it is a paper business until cash flow realizes? The answer is quite simple….Because of DEBT….
Trading has over the years evolved from a cash basis to a credit basis. What this means is that turnover is being done on a credit basis over a period of time equal to the trading terms you allow. The same applies to suppliers. Spending happens on terms as well and once again it is all paper trading until the account is being settled.

So how do we then get the business to work for us?
One of the most difficult things in the current economic climate is for business owners to collect debt. A fair amount of management time should be allocated to the reality side of your business. Strict control should be implemented around debt collection to ensure that cash flow does become reality and does not just remain vanity. Once the money is in the bank account, business owners can trade healthy and well in an economy and the pressure is taken off. Why do we then sit in an economy that recently received junk status? Once again the answer is simple. We have a very corrupt government that enrich themselves through money that should remain in an economy and once they have done so, they go and invest abroad or keep the cash invested in illegal schemes. Theft like this also leaves a void behind and unfortunately business owners acting with integrity simply cannot survive anymore. We have seen that most industries suffer as a result of government being bankrupt. More money is also extracted from the country through overseas investors not willing anymore to invest in a corrupt country.

At Outcor we love the SMME market and we prefer to do business with this market sector. Through doing business in smaller sectors and non government institutions we as business owners are able to retain cash flow in a smaller micro economy and make it a reality. Why not consider doing business in the micro economy as opposed to the macro economy? Maybe business would become more reality to us and we will not face vanity all the time. Consistency in a business scenario with vanity all the time as opposed to reality will en up in a situation of “business death”, poverty, recession and very difficult times.

Contact us for help with your reality checks and let us support each other as small businesses and make a difference in our country. Let us turn the unemployment into vanity and employment into reality!

Contact us today for a free and obligation free assessment.