Business Myths

[cashmax]

There are often business “words of wisdom” that come up conversation now and then. To get it off my chest, I thought I would list the ones that I strongly disagree with. My top 3

Turnover is vanity, profit is sanity - This statement seems to get trotted out by someone everytime people discuss running a business. I would argue that they are two numbers which make up a part of the picture, but can very easily be misunderstood. In my view cashflow is the only single metric that matters when you are running a business. Profit is an arbitrary number that can be manipulated in all sorts of ways and often tells you jack st about a business. Turnover is vastly more important to gauge the scope of a company that profit. Some of the largest businesses are sold for billions when they have never made a profit. A company that makes £100 turnover and no profit is always going to be worth more that a company that turns over £5M and makes £1M profit. If either of the numbers is sanity, its turnover, not profit.

You’ll never get rich working for someone else - Total rubbish, tell that to people with stock in the business they work for or the private equity partners or the legal partners or in fact the partners in many of the big firms across many industries.

Doing well in business is all about hard work and being smart, luck plays no part. - Bullst, luck is everything. Being smart and working hard are pre-requisites for sure, but without some luck, you can forget it.

[Frimley111R]

cashmax said:

Doing well in business is all about hard work and being smart, luck plays no part. - Bullst, luck is everything. Being smart and working hard are pre-requisites for sure, but without some luck, you can forget it.

Didn't a famous golfer say something like 'The harder I work the luckier I get'?

[Fittster]

cashmax said:

You’ll never get rich working for someone else - Total rubbish, tell that to people with stock in the business they work for or the private equity partners or the legal partners or in fact the partners in many of the big firms across many industries.

Who do partners work for?

[Eric Mc]

How many of these "partners" are genuine partners?

In my experience, many of them are really employees adopting the title of partner purely for tax purposes.

[technodup]

cashmax said:

A company that makes £100 turnover and no profit is always going to be worth more that a company that turns over £5M and makes £1M profit. If either of the numbers is sanity, its turnover, not profit.

Not if they're selling tenners for £5 or otherwise have no real prospect of making money. If you get to £100M turnover and haven't figured out how to make a profit there's something wrong imo.

cashmax said:

You’ll never get rich working for someone else - Total rubbish,

It's generally true. If you're working for someone else by definition they're getting a bigger slice than you. Obviously rich is relative, it's not meant to be set in stone as a defined rule.

cashmax said:

Doing well in business is all about hard work and being smart, luck plays no part. - Bullst, luck is everything.

That's just garbage not worth going into.

[Fittster]

technodup said:

hat's just garbage not worth going into.

You're so clueless. Your chance of success are much higher if you are born to the right parents.

[Foliage]

cashmax said:

A company that makes £100 turnover and no profit is always going to be worth more that a company that turns over £5M and makes £1M profit. If either of the numbers is sanity, its turnover, not profit.

What? explain

Money from sales is more important than profit? money before overheads have been paid is more important than money that has no debt associated with it? ok im lost.

[singlecoil]

Frimley111R said:

cashmax said:

Doing well in business is all about hard work and being smart, luck plays no part. - Bullst, luck is everything. Being smart and working hard are pre-requisites for sure, but without some luck, you can forget it.

Didn't a famous golfer say something like 'The harder I work the luckier I get'?

I daresay he did, if he was a really clever guy he would have admitted that luck also plays a part regardless of practice. There are many people who no matter how hard they practice will never become top golfers.

For instance, being born with a talent for golf is a matter of luck. Practice comes on top of that.

[cashmax]

Foliage said:

cashmax said:

A company that makes £100 turnover and no profit is always going to be worth more that a company that turns over £5M and makes £1M profit. If either of the numbers is sanity, its turnover, not profit.

What? explain

Money from sales is more important than profit? money before overheads have been paid is more important than money that has no debt associated with it? ok im lost.

If a company is turing over £100M and breaking even, then the scope for profit is significant. Perhaps the lack of profit is as a result of investment. Look at companies like Tesla and Amazon.

[cashmax]

cashmax said:

Doing well in business is all about hard work and being smart, luck plays no part. - Bullst, luck is everything.

That's just garbage not worth going into.

I did qualify this to say that luck is the variable.

I sold my business and made a few quid. I know lots of people who are smarter & work harder than I ever did, but they haven't had the same result. When I look back I realise that things beyond my control are what added the extra factor into making the business successful. Luck can work both ways.

[Zod]

Eric Mc said:

How many of these "partners" are genuine partners?

In my experience, many of them are really employees adopting the title of partner purely for tax purposes.

I was a proper partner until we became an LLP. Now I'm a member of the LLP, supposedly equivalent to a director, in that I have to file at Companies House. Economically, I am still in the same position, in that I get a share of profits, not a salary, but law firms have changed a lot in the last decade or so. It's no longer a sinecure.

Profit, by the way, is not a reliable measure of a business's success. It is a creation of accountants. I see a lot of companies get into trouble despite being profitable from an accounting point of view. UK law firms are a case in point; under UK GAAP, our profit calculation takes into account unbilled work in progress, so if the bills are either never issued or not paid, we end up with a write-down in the next year. HMRC loves taxing us on unbilled WIP.

Edited by Zod on Tuesday 19th January 17:06

[Foliage]

cashmax said:

Foliage said:

cashmax said:

A company that makes £100 turnover and no profit is always going to be worth more that a company that turns over £5M and makes £1M profit. If either of the numbers is sanity, its turnover, not profit.

What? explain

Money from sales is more important than profit? money before overheads have been paid is more important than money that has no debt associated with it? ok im lost.

If a company is turing over £100M and breaking even, then the scope for profit is significant. Perhaps the lack of profit is as a result of investment. Look at companies like Tesla and Amazon.

Tesla is a special case (a new company developing a new product, with significant shareholder faith) and Amazon make a profit. Any other examples?

[Fittster]

Foliage said:

cashmax said:

Foliage said:

cashmax said:

A company that makes £100 turnover and no profit is always going to be worth more that a company that turns over £5M and makes £1M profit. If either of the numbers is sanity, its turnover, not profit.

What? explain

Money from sales is more important than profit? money before overheads have been paid is more important than money that has no debt associated with it? ok im lost.

If a company is turing over £100M and breaking even, then the scope for profit is significant. Perhaps the lack of profit is as a result of investment. Look at companies like Tesla and Amazon.

Tesla is a special case (a new company developing a new product, with significant shareholder faith) and Amazon make a profit. Any other examples?

Ocado? How / Why are they still going??

[Zoon]

A company turning over £100? What is it a school playground sweet business?

[technodup]

Fittster said:

technodup said:

hat's just garbage not worth going into.

You're so clueless. Your chance of success are much higher if you are born to the right parents.

Aye OK. Nobody's saying luck has nothing to do with success, but equally it's never the only factor, unless you're talking lottery wins.

And what some people see as a stroke of luck, getting a deal, finding a mentor or whatever usually comes at a hidden cost of time, graft, sacrifice, asking the right questions, the right people etc. What's the quote about it taking a long time to become an overnight success?

[Zoon]

Another good business myth is the one where people assume you can put every personal purchase through the books and claim the VAT back. Nice idea but hard to explain to HMRC.

[Zod]

Foliage said:

Tesla is a special case (a new company developing a new product, with significant shareholder faith) and Amazon make a profit. Any other examples?

Amazon has made a profit in one accounting period so far, if I remember correctly

[cashmax]

technodup said:

Fittster said:

technodup said:

hat's just garbage not worth going into.

You're so clueless. Your chance of success are much higher if you are born to the right parents.

Aye OK. Nobody's saying luck has nothing to do with success, but equally it's never the only factor, unless you're talking lottery wins.

And what some people see as a stroke of luck, getting a deal, finding a mentor or whatever usually comes at a hidden cost of time, graft, sacrifice, asking the right questions, the right people etc. What's the quote about it taking a long time to become an overnight success?

I didn't say it was the only factor. I thought my post was clear enough in that regard. I said it was the variable. i.e that it can make the difference between success and failure.

Looking back to when I was building the business, we made a big mistake and had to stop what we were doing and change the a fundamental part of it to correct the impending doom. Just as we had finished it, the market went through some dramatic changes, which happened to suit our "new" methods perfectly. The Private Equity guys thought I was a genius and saw the market changes coming, of course I had no idea. The business flew from there. That wasn't hard graft or anything else, it was a fortunate change of circumstances and market timing, i.e luck.

Like I said, you can do everything right and still fail, there is no guaranteed recipe for success.

[cashmax]

[/quote]Amazon make a profit. Any other examples?
[/quote]

Thats my point, they didn't make a profit for 20 years. Just checked and they were valued at $165 billion in 2013 without having ever turned a profit.

You want more, how about snapchat, twitter, instagram, tumblr, spotify to name a few of the dot coms. All valued in the billions, yet worth jack st, or are they all special cases?

Edited by cashmax on Tuesday 19th January 17:30

[jammy_basturd]

cashmax said:

Foliage said:

Amazon make a profit. Any other examples?

Thats my point, they didn't make a profit for 20 years. Just checked and they were valued at $165 billion in 2013 without having ever turned a profit.

You want more, how about snapchat, twitter, instagram, tumblr, spotify to name a few of the dot coms. All valued in the billions, yet worth jack st, or are they all special cases?

Edited by cashmax on Tuesday 19th January 17:30

Amazon make a profit on nearly everything they sell. Otherwise they wouldn't have enjoyed such enormous growth. That their accounts show that they haven't made a taxable profit is down to 1) reinvesting the profit in the business and 2) highly paid accountants.

Dot coms are a special case. Having a huge audience has traditionally been seen as something that is extremely valuable. Investors are gambling on the fact that these companies will eventually work out how to turn their valuable audience into a profit. Alternatively, the investors are expecting a large IPO to more than pay back their investment and therefore turning a profit is irrelevant until these companies have shareholders to answer to.