A UK accountant has warned that many Brits are making a costly ‘big mistake’
It’s thought that up to one in five Brits are now operating small online businesses, either as a side gig to boost their income or as their main source of employment when traditional jobs aren’t available.
However, an accountant has warned that a substantial number of them are making a critical error. The blunder, commonly made by those new to commerce, involves fixating on sales figures rather than focusing on actual profits.
“There’s a well-known saying in the business world: ‘turnover is vanity, profit is sanity, but cash is king,'” explained Harvey Dhillon, founder and CEO of nationwide accountancy firm Zmartly. “And as a company that works with hundreds of ecommerce sellers, we regularly see too many people focused on turnover rather than profit – and that needs to change.”
Harvey highlighted that turnover was the most deceptive figure in small business operations, yet small online traders, particularly those just starting out or working from home, gave it far too much weight.
Harvey continued: “A person generating sales of £100,000 a year on Amazon or eBay will tell you they run a six-figure business. That sounds very impressive until you look at what actually reaches their bank account, as we do each day.
“Platform fees take a slice. Advertising to stay visible takes another big slice. Then there’s shipping, returns, payment processing, the cost of the stock itself and tax on what is left.
“We regularly see sellers turning over six figures who are effectively working full-time for less than they would earn stacking shelves and they have no idea until someone shows them the real maths.”
Harvey encouraged the millions of Brits flogging goods online to shift their focus from monitoring sales figures to tracking the profit margin each individual product delivers. In essence, to scrutinise the numbers more closely.
He explained: “Looking at the products that generate the best margins, or profit, is second nature to more experienced business owners, but for people starting out or who haven’t run a business before, it’s not the case. They’re too often focused on the vanity side, but it’s the sanity side that pays the bills.
“When we speak to these people, we urge them to drop the product lines that look busy but lose money and put all their efforts behind the few products that actually pay.
“Yes, making fewer sales can feel counter-intuitive and is far less exciting than a big sales graph, but understanding that it can mean a better and more profitable business is the difference between a hobby that drains you and a business that pays you. The number that matters is not what you sold. It is what you kept.”
