“Turnover is vanity, profit is sanity” she said. I quashed the inner smirk and we moved on.
However, clichés become clichés because they encapsulate a truth, they have a resonance. It wasn’t until a little while later that this particular nugget’s ripples started worming their way into my thoughts.
We were being shown around a pub whose lease we were considering taking on. We were looking at pubs with rooms, because, after eight years of running a successful B&B in Cornwall, we had come to the conclusion that we needed to be putting away more money at the end of the year than we were able to.
The B&B business itself was very sound, and profitable, but we had borrowed excessively to buy the property, at a time when it was still possible to do so, and the mortgage repayments were consuming virtually every penny of the profits we were generating.
So, how to go about generating more money to squirrel away for later years ?
We had been considering taking on a pub for a couple of years or so. When I say ‘considering’, this usually consisted of spending time sat in a pub and, after that critical half too many, starting to discuss something along the lines of ‘This place is great, but if only they did this / that / various others’.
One year, five minutes after setting out on a bike ride, a tyre blew out on one of our bikes and it started raining, so we decided to skip the cycle ride and spend the lunchtime in the local pub instead. This pub had been on the market for some time, had a reputation for very good food, but that reputation was based on owners that had long since moved on.
We must have consumed a touch more than the critical half too many that lunchtime, because our normal ‘what if we were to run this place’ discussion morphed into serious intent. We contacted the agent, who arranged for copies of the accounts to be sent to us.
Our enthusiasm was dashed when we saw that on a turnover ten times that of our B&B, profit was not much more than we were generating. Yes, we could have improved profits by going in as owner-managers, removing some kitchen/bar staff costs, but we would have been working significantly longer hours for not a great deal more money.
We put the idea to bed.
Fast-forward two years.
The local pub’s figures had convinced us that, for our purposes, simply running a pub wouldn’t provide enough of an increase in income to warrant giving up the B&B. However, the addition of letting rooms, and the greater profit margin that they provide, made for a tempting proposition. When we learned of just such an opportunity, we jumped.
When that opportunity fell through, we looked at a number of similar businesses, some the other end of the country, meaning that as well as the upheaval of taking on a new type of business, which would involve a considerable learning curve, we were considering moving to areas we had little or no experience or knowledge of. This was at the depth of the worst economic depression for decades. You’d be right to sense a little desperation.
However, the more businesses that we looked at, the more solidly a pattern seemed to be emerging. We were looking at businesses with a turnover of around £400-£500,000 per year. We were doing this, because we thought we needed to be earning more money, and, according to our thoughts at the time, in order to generate more profit, turnover needs to be much higher.
Almost without exception, these businesses were showing an average annual profit of £25,000. Yes, there was a bit of a step up from a business turning over £300,000 to a business turning over £500,000. But not that significant, not as significant as you would imagine, or hope.
It was at this point that we were introduced to the purveyor of clichés that we met in the first sentence.
We were being shown around a small pub with a couple of letting rooms, in a pleasant location that we were fairly familiar with. The striking thing about the particulars was the fact that profit was at the same level as the larger businesses we had been viewing, but on a turnover of just £120,000.
The reason this was possible was because the owners did all the work themselves. The bar wasn’t massively busy, the dining area could cater for maybe thirty covers, and there were just two letting rooms, with occupancy limited pretty much to the main holiday season.
When walking around, discussing figures, asking about the viability of increasing the level of turnover, to increase profits, out popped the ‘vanity’ sentence.
In order to service the turnover that the larger businesses were experiencing, staffing, plus other associated costs, needs to increase dramatically. The costs of generating the income consume all the profit. It is, quite literally, a pointless exercise ( financially speaking – there are many valid reasons for undertaking such a venture, but none were strong enough to convince us to ).
It turned out that that particular pub wasn’t for us. However, the experience reinvigorated our search, and pushed it in a slightly different direction.
We reconsidered a local pub whose particulars had been showing up in searches, but which we had been dismissing because it was ‘just a pub’. It now seemed like a very manageable proposition for just the two of us, for a reasonable profit, whose level could be improved with just some very basic operational tweaks.
However, when that project also fell through, the logic of profit versus turnover started eating away at the most fundamental choice that we had taken, that choice being to take on a lot more work, to strap ourselves into a situation that would be very difficult to extricate ourselves from, for quite a few years.
Why were we doing this ?
We were doing this because we wanted to put money aside in order to in, say, 10 years time, pursue the things that were of most interest to us. We needed the money behind us because the cost of both buying and renting property, plus the associated running costs, was so high in Cornwall. If we wanted to spend the majority of our time doing things other than ‘working’, we needed to have the funds available to do so.
There seems to be a point in our lives when our mind’s consideration of time shifts subtly, when suddenly the notion of ‘ten years’ doesn’t seem like a long time. However, ten years, at that point, represented approximately 25% of the amount of time we had already spent consuming oxygen on this planet, and yet we were considering writing off just such a period, postponing our lives for 87,600 hours.
When you are ten years old, the prospect of having to wait ten years for something is ludicrous, impossible to conceive. Waiting a day is torture enough. Can you imagine saying to a ten year old “Yes, you can play with your friends in the park, but not until you have spent the next 5,256,000 minutes completing your homework” ?
Thankfully, there was sufficient doubt in our minds regarding this choice that when the notion of moving to a new country was introduced, we were ready to consider it seriously. Specifically, the notion of being able to just about afford to buy a very small property, with no more space than required for the two of us, to be free of having to pay our monthly pound of flesh to the bank, live with very low outgoings, and have the time to explore our interests, proved to be impossible to resist.
During the intense period that followed, very few conscious decisions were being made. The above thoughts were not clearly defined, we were not working to an immaculately conceived master plan.
Often, when a patch of overgrown ground is cleared after years of neglect, it will magically sprout clumps of foxgloves whose seeds have lain dormant, waiting for the right conditions to emerge. Similarly, somewhere deep within the inner recesses of our combined gloopy subconscious, we knew that the timing and conditions of the proposed change were right, and we trusted our instincts sufficiently to roll with the repercussions of accepting it.
For us, profit equates to being able to enjoy the here and now, not having to postpone plans to an imaginary point in time that may or may not materialise. It has required contraction rather than expansion to achieve.
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