Are You Selling More, Working Harder... and Making Less Money?
Updated: Aug 26
Written By: Melissa Cunliffe
Has your family business had one of its biggest years for sales—yet somehow there's less money left at the end of the month?
If the answer is yes, you're not alone.
Australian businesses continue to deal with significantly higher operating costs across wages, superannuation, insurance, electricity, fuel, rent, finance and supplies. And that's creating a strange situation for many family businesses.
Sales are up.
Everyone is busier.
Turnover looks fantastic.
But...
Profit is down.
Selling more, working harder and making less money can be one of the most frustrating situations for a family business owner.
And sometimes cash is even worse. This is where business owners need to stop measuring success purely by revenue. Because the biggest business isn't necessarily the best business.
The $2 million business that made less money
Consider a simple example. Last year, a family business generated:
Sales: $1.8 million
Net profit: $180,000
This year, sales increase to:
Sales: $2 million
Everyone celebrates. Turnover has increased by $200,000—or about 11%. But wages have increased. Super has increased. Insurance has increased. Suppliers have increased their prices. Electricity and fuel cost more. Finance costs have increased. And the owners haven't increased their prices enough to compensate.
The result?
Sales: $2 million
Net profit: $140,000
The business sold $200,000 more...
...and made $40,000 less profit.
That's growth in turnover. It isn't growth in prosperity. Revenue can hide problems. Business owners naturally focus on sales. It's visible. You see customers coming through the door. You see invoices being raised. You see jobs being booked. But revenue tells you only how much you're selling. It doesn't tell you how much you're keeping.
That's why we encourage family businesses to regularly review:
gross-profit margin;
labour percentage;
supplier costs;
overheads;
pricing;
customer profitability;
debtor days;
stock turnover;
net-profit margin; and
cash flow.
A business can grow itself into financial trouble if these numbers aren't monitored.
When did you last properly review your prices?
Many family businesses increase prices reluctantly. Suppliers don't. Insurers don't. Employees understandably expect wages to keep pace with their circumstances. Superannuation increases happen regardless. Software subscriptions rise. Fuel fluctuates. Banks change interest rates.
Yet business owners often absorb these increases because they're worried customers will leave. The result is margin compression. Your customer continues receiving the same product or service. Your business carries the additional cost. Eventually, the owner's profit becomes the shock absorber.
Your most profitable customer may not be your biggest customer
Another mistake is assuming the customer who spends the most is automatically the most valuable. Imagine Customer A spends $200,000 annually.
But they:
constantly negotiate discounts;
require urgent work;
pay in 60 days;
generate rework;
consume significant staff time.
Customer B spends $120,000 but:
accepts standard pricing;
pays within seven days;
orders consistently;
requires minimal administration.
Which customer is more valuable? Turnover won't answer that question. Customer profitability will. And then there's cash This is where things become even more confusing.
Profit and cash are not the same thing.
Your Profit & Loss Statement might say you've made $200,000. That doesn't mean there should be $200,000 sitting in your bank account.
Cash may have gone into:
unpaid customer invoices;
additional inventory;
equipment purchases;
loan principal repayments;
GST;
PAYG;
income tax;
superannuation;
owner drawings; or
other balance-sheet movements.
This is why a profitable business can still experience serious cash-flow pressure.
The three numbers every family business should understand
At 3P's Future Accounting, we believe owners should be able to answer three questions:
1. What are we selling?
That's revenue.
2. What are we keeping?
That's profit.
3. Where is the money?
That's cash flow.
If you only monitor the first number, you're seeing one-third of the picture.
Protect. Preserve. Prosper.
This is exactly why we developed our 3P's Future Prosperity Model.
PROTECT
Protect the business by understanding its break-even point, maintaining cash reserves, managing debtors and ensuring rising costs don't quietly destroy margins.
PRESERVE
Preserve the wealth you've already created.
If the business generates more revenue but requires increasingly more working capital, debt and owner funding, growth may actually be consuming wealth rather than creating it.
PROSPER
Prosper by creating profitable growth.
That may involve:
increasing prices;
eliminating unprofitable products;
reviewing staffing;
renegotiating suppliers;
changing purchasing practices;
improving productivity;
using technology effectively;
changing customer mix; or
restructuring parts of the business.
Sometimes the answer isn't more sales.
It's making more money from the sales you already have.
Five questions to ask this month
Sit down with your latest numbers and ask:
1. Have sales increased?
2. Has gross-profit percentage increased or decreased?
3. Have wages and overheads increased faster than revenue?
4. Has net-profit percentage improved?
5. Has cash in the bank actually increased?
If sales are rising but the answers to the other questions are going backwards, it's time to investigate.
Selling More, Working Harder and Making Less Money Isn't the Goal
Family businesses often measure success by activity. Phones ringing. Trucks moving. Staff working overtime. Orders coming in. Jobs booked months ahead. Those can all be positive signs. But activity isn't the objective. Prosperity is.
At 3P's Future Accounting, we want family-business owners to build businesses that don't simply get bigger.
We want them to become stronger, more profitable and more valuable.
Because after years of taking risks, employing people and working long hours, the question isn't simply:
"How much did we sell?"
The better question is:
"How much did we actually keep?"
Book a meeting with our team today to look beyond your revenue and understand where your profit and cash are really going. We can help identify margin pressures, review your pricing and costs, and find practical ways to turn busy growth into profitable growth.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
