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Margins Are King Makers – Cash is the Consequence

The origin of “cash is king” is not clear. It was used in 1988, after the global stock market crash in 1987, by Pehr G. Gyllenhammar, who at the time was Chief Executive Officer of Swedish car group Volvo. Wikipedia

We have all heard it before, revenue is vanity, profit is sanity but cash is king.

All well and good if you’re a passive investor, with no control over the fortunes of the company, but if you are the person that is responsible for producing the cash you have to pay close attention to your margins.

Margins are more important than your revenue and mostly determine your ability to make profits. If you only ever worry about reducing overheads the technical term for what you have is misery. I say “only” because obviously overheads, at least in the medium term, but hopefully from day one, have to be less than gross profit. Otherwise, as a friend of mine says,  you might as well quit and gut fish for a living.

Margins do not exist as some sort of chaos theory unknowable cloud, they are made up of each of your service deliveries to your clients. Item by item, hour by hour. To make sense of it all, to make sense of anything in this world, you should start by classifying them into groups.

Groups for most businesses are income streams, products and types, client types, each individual client, internal delivery teams and geographical location. They are all just the sum of each client interaction.

It is by grouping them this way that you can start to see differences and trends. Think of yourself as an amateur scientist, only base your findings on data. Most “gut feels” about things with lots of data are wrong. Our minds can’t hold all that information at once.

What would you do if you were Queen or King for a day?

 

Photo by Valario Davis on Unsplash

 

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