Profit Versus Turnover

Published : 23 February 2017

If you're planning to buy a business, there are probably a million questions running your head right now! And quite a few different emotions, too.

Excitement, trepidation, fascination - and perhaps a little confusion over the terminology of the business advertisements your are reading.

One of the most confusing issues for new business buyers is the difference between profit and turnover - and clearly this is a key issue you need to get right!

Understanding the Terminology

The simplest definition is this: 'turnover' describes the net sales your business generates, while 'profit' is what's left after all expenses have been covered. It is very important to understand this difference when looking at a potential business.

Turnover is sometimes referred to as T/O - or Total Sales. And 'turnover to date' means the turnover so far that financial year. Turnover to date can help your predict your annual figure.

It's also crucial to be clear on whether the business seller is referring to 'gross' or 'net' profit. The Gross Profit Margin has only had the 'cost of goods sold' deducted - not all the non-product expenses. The Net Profit Margin is the figure you arrive at after ALL expenses have been deducted from the revenue. 

Understanding What's Involved 

This is only part of the picture when buying a business, and it's important to be across all aspects of the deal. Generally speaking, however, there are many advantages to buying an established business:

  • The hard work of setting up systems, databases and target groups has been done
  • In theory, there is a definite market for the product or service
  • Proven profitability makes it easier to access finance
  •  Fit-outs and marketing may be in place
  • Trained staff may be willing to stay on

These 'positives' do, however, raise questions:

  • Will existing staff be hostile towards change?
  • Is the fit-out / equipment out of date?
  • Are existing customers satisfied with the service they have been receiving?
  • Are there outstanding debts on equipment?
  • Is the existing lease secure?
Matching Businesses to Buyers

Buying a business is a huge investment and potential risk, so you really need to get it right from the get-go. For this reason, it is essential to involve your solicitor and your accountant right from the start.

Generally it is considered safer to buy and sell businesses through a specialist organisation, where tools are in place to deliver the right information, and match businesses to buyers. 

In today's unsettled workplace, buying a business is a great way of buying yourself a job, as well as creating that perfect work-life balance. Get the right advice and you'll never look back.

 

Sell your commercial property or business privately without business brokers. We advertise your business for sale or real estate listing in our go-to website, national glossy Coast to Coast Magazine and major real estate websites reaching many motivated buyers. Call now to sell your business or property 1300 793 792 or email enquiries@ctoc.com.au.