In an impromptu speech at Business Startup 2011, entrepreneur Doug Richard stressed the importance of small business owners focusing on profit over revenues.

#bstartup In an impromptu speech at Business Startup 2011, entrepreneur Doug Richard stressed the importance of small business owners focusing on profit over revenues.

Former Dragons' Den star Richard, addressing an audience of more than 150 at the event, discussed how managers frequently make the mistake of being turnover-focused.

Said Richard, 'Profit matters, revenue does not. Everyone runs after sales, very few people run after profit. If you can make more money on smaller revenues, you're better in business than someone who has to earn more money to make [comparatively] less profit.

'The best businesses of all spend very little money, because then a very little bit of revenue goes straight to the bottom line and you're profitable with little effort. When starting a business, begin by not spending money. Spending money is what consumers do, not businesses. Businesses make money.'

Richard gave the example of someone who came to him and said his business turns over £220 million. 'He said it translated to profits of £2 million. I said that is one crap business you're running - that's no margin at all. What are you spending £218 million on? You're a testament to inefficiency.'

In his speech, Richard also discussed how the biggest challenge small businesses have is reaching customers.

'Everything you do is based around taking something utterly invisible and making it just a little visible. And you're trying to become a little visible solely to those people who might buy your product.'

He added, 'I'm confident we haven't exhausting the list of marketing tools that cost no money. For example, you only pay Google for an ad word when people click on your ad. So you're only paying them if someone is not only interested in the area you're selling to them, but they act upon it.'

See also: No minimum wage increase, urges business group

Related topics: Doug Richard, Profit, Turnover