The real power of breakeven

Business coaching Brisbane

business coaching BrisbaneThe breakeven calculation is great financial management information for any business.  It tells what you want to know, but of course it doesn’t tell you how to fix it.  That is your job.  But at least you know there is a problem and where to look.

So where do you look?  Think about the variables (things you can change) that are involved in this calculation, and what you can do about it:

  • Sales – you can increase sales by increasing price and / or volume
  • Cost of sales – you can find some efficiencies in costs and / or processes to decrease cost of sales
  • Gross profit margin – will improve if you increase sales and / or decrease cost of sales (above)
  • Fixed costs – are often fixed for various periods of time, but not permanently.  These costs always come up for review

I can’t stress enough how important the concepts of pricing and costing are in determining your breakeven point and profit.

Of course, the real power of breakeven is in financial forecasting.  It is the number one financial tool of the business planner.

If you are competent with Excel, you can build a financial model of your business on a spreadsheet.   That way, you can know before you hit the street, whether or not (on paper at least) your business will make a profit.  The implementation is up to you, but if you hit your targets you can be sure you will be successful.

Breakeven analysis – the quick profit check

Business coaching Brisbane

Business coaching BrisbaneThere is a very simple calculation you can do to see if your pricing and costing is correct, and that you are making money.  It is the all-important ‘Breakeven’ calculation.

Let’s say that your fixed costs of running your business for a year total $50,000.

Fixed costs are those costs that represent your business base, regardless of whether you turn up for work or make a sale.  They include commitments such as rent, leases, admin, power, office costs, and interest on borrowings, but it excludes depreciation because that is a non-cash expense.

Now let’s assume that last year you made $180,000 in sales at a gross margin of 25%.

Gross margin is what’s left over (expressed as a % of sales) when you subtract from your sales, the cost of making those sales.  It includes costs that are directly associated with the manufacture and selling of your product and service (e.g. time, materials, other manufacturing costs, the cost of paying sales staff, other marketing costs etc).  If you do these things, don’t forget to add in the cost of your own time.  It is not free!!

The breakeven sales calculation = Fixed costs / Gross margin % 

In this case, breakeven sales = $50,000 / .25 = $200,000

Therefore, you needed $200,000 in sales to breakeven, and you achieved only $180,000.  You needed another $20,000 in sales.   As a result, your bottom line will be a loss of $5,000  i.e. ($180,000  x 25%) – $50,000

The calculation is simple but it might take you a little time to gather together the right information to perform the calculation.  In my next post I will show you the real power of knowing your ‘breakeven’.

Are you pricing yourself out of business?

Gary WeighBusiness Coaching Brisbane – An Expert Fix

I visited a new client recently.  His business was building company websites.  He wondered why he wasn’t getting ahead even though he and his staff were reasonably busy.  There were a few problems but his pricing was such that at full capacity his gross margin couldn’t cover his fixed costs.  That means the more work he did, the more money he lost.  Who would have thought?

I know that all this ‘margins’ and ‘fixed costs’ stuff all sounds like accountant ‘gobbly-gook’ speak but this problem has been sending many enterprising business owners to the wall for thousands of years.

Mis-pricing is a common trap for many inexperienced business owners.  If you over-price, customers will buy from your competitors if you have nothing else to retain them.  Under-price and your profit (and your business) could be non-existent.

It is the one critically important variable you must get right to be competitive, make a profit and stay in business.  Common pricing mistakes include:

  • Following rules of thumb
  • Comparing with competitors and discounting by 10%
  • Not taking into account the unique cost structure of your business
  • Not taking into account your own time when considering cost price
  • Not pricing to a target volume at a target gross profit margin

Good financial management skills are never needed more than when you are determining the cost prices and selling prices of your products and services.   If you need help give me a call.  Coaching is an investment in the future profitability of your business.  CHECK OUT OUR SERVICES   SIGN UP NOW

Did you know that GARY WEIGH & ASSOCIATES  is not only a leading business coaching Brisbane company but also a leading financial planning firm (authorised representative of The FinancialLink Group Pty Ltd) specialising in retail & self managed superannuation advice and personal protection insurance advice?

Stay focused

Business building Australia – Brisbane based

Gary Weigh business buildingIf business building is your focus this year, give up trying  to be all things to all people.  Doing that might make you feel good but is the quickest way to lose focus by running  around doing things that you are not good at.   Let me assure you that losing focus means losing money.

Focus on the product and service you want to offer, package it up and go out and sell it.  Narrow your focus onto the things you are very good at, find the customers who want to buy your package, and resist the urge to be overly obliging to customers at any cost.  Doing so will only add to your costs without adding to your revenue at your target margin.

Business coaching is the surest way to keep you  focused on your targets.   Invest in your business at http://garyweigh.com/

Losing Weight in 2013

So what do I know about weight loss?   Well nothing except my own experiences, which I want to share.

As you know, I am a Brisbane-based business coach and financial planner, but I have always struggled with my weight. So if your goal is to lose weight, go to my AIKIDO SECRETS SITE http://www.aikido-secrets-to-calm-success.com site and check out my personal CHUCK WAGON diet journey.

The secret is to start small and do what you know you can stick with. My diet is simple. Start off bad and each day you improve by throwing out another piece of garbage food off the CHUCK WAGON. Slowly work your way to a new way of eating that involves a whole lot less fat and sugar. The chuck wagon way means that your body adjusts slowly and rather than going cold turkey, you simply get a bit better each day, until you reach your goal.

Also make sure you do something to move your body each day. I like walking for 20-45 minutes but everyone is different. REPEAT day after day. After a few short weeks you will slowly teach your self to be good with food and your little bit of exercise will make you feel rejuvenated.

The Secret to a Very Happy New Year

1. Guard your health; get a medical checkup

2. Start your household budget (I can send you a great easy-to-use template)

3. Save for the present and invest for the future

4. Protect your income and your family

5. Set goals that really mean something to you

2013 is the year to take action to make a difference. No more procrastination; no more excuses. Just start. Others will help and support you but it needs you to kick it off. Don’t just make it a new year resolution. Doing that simply puts a 12-month use-by date on it. Make it a life change. Get emotional about it and get friends and family involved. Go do it for your own sake. How good is the feeling of achievement and self satisfaction.

Featured Business

VOODOO DOUGHNUT

22 SW 3rd Avenue Portland Oregon, U.S.A.

Whilst walking through the Old Town district of Portland Oregon last weekend, I saw the long queue of people out on the sidewalk and down the street.  Just as I was starting to think there was free beer, I saw an inconspicuous doorway and a sign over it saying, “VOODOO DOUGHNUT the magic is in the hole”.

I noticed the pink boxes before I took notice of the many people walking around downtown Portland.  Once again “VOODOO DOUGHNUT the magic is in the hole”.

It just goes to show how a great product presented in a crazy fun way which, in this case satisfies just about every cake, doughnut, sugar, chocolate and candy craving all at once. And it’s available 24/7.

I take my pink hat off to the creative business genius of  founders Kenneth “Cat Daddy” Pogson and Tres Shannon.  There is not much more I an say except check it out for yourself at http://voodoodoughnut.com

My north American business adventure continues

Gary

Business coaching Brisbane, Australia

gary@garyweigh.com

Family business – the 3 generation challenge

Business building Australia

Most family businesses don’t make it into the 3 generation of ownership.  It is too often the case that the second generation take for granted the business built by the first generation through sweat and hard work.  There are several reasons why the second generation steers the family business towards trouble.  These include:

  • Children grow up in their parents business and take it for granted
  • They have no training or qualifications
  • They have no defined roles or job descriptions
  • They have no experience outside the business
  • They have been given the business rather than required to build it or pay for it
  • They mix family and business matters which causes communication problems

It seems a simple task to ask families to conduct business as though they aren’t related but it is not easy.   Nevertheless, before the going gets tough it is best for the whole family to sit down together and talk openly.  An external facilitator will help keep things on track.   If nothing else, a plan and a set of family rules would be a great start.

Financial control – a common blind spot

Business planning Australia

Most businesses that fail inside the first 3 years are victims of poor management and, in particular, poor financial management.  Unfortunately, most owners are technically minded and are not sufficiently trained in financial control to manage effectively.   So when their business starts to lose money the underlying reason can easily go unnoticed.

It is very common for owners to rely on their accountants.  Whilst accountants are very good at tax and compliance, financial accounting is mostly about determining what happened 12-18 months ago.   Businesses need to know what happened last week and what is likely to happen this week and next week.

Effective financial control comes from knowing the art of management accounting.   That is, using financial information for management decision making.    It is common to find business owners going broke because they under-cost and therefore mis-price their products and services.  Understanding the cost structure of your business is essential, getting the pricing right, and controlling cash in and cash out is the life blood for survival.

At Gary Weigh & Associates, we have spent years refining ‘first principles’ financial control concepts into easy to understand financial control tools for business owners.  We make difficult concepts easy with our simple financial models (e.g. costing, pricing, budgeting, break even and cash flow) .  We can show you your entire business performance on one sheet of paper.   Forecasts become child’s play.  All the work is done for you.  We tailor a model to your needs and all you need to do is input the variables that reflect your future plans.  You will see the forecast result instantly.

This is down-to-earth business planning Australia style.  If you would like to know more, call direct on 0408 756 531 and talk to Gary personally.

Follow @MyProsperityFor

Can you take a holiday from your business?

Business coaching Brisbane

If you can’t get away from your business for a holiday, maybe you don’t have a business at all.  The majority of people who say they are in a small business are in fact self-employed.  That means you are the business and without you, there would be no business.  It also means that you have little to sell when you retire.

A real business is one which will run smoothly with you or without you.  It is also a valuable retirement asset.  Being able to take a holiday is the true test of whether you have a business or not.  If you can’t take a holiday, you are probably self-employed.

So if you want a real business, start building one.  If you don’t know how simply visit www.garyweigh.com or call Gary on 0408 756 531 and ask how.

Follow @MyProsperityFor