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The real power of breakeven

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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.

Are you pricing yourself out of business?

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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?

Financial control – a common blind spot

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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.

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Call me if you are in trouble …

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Business coaching Brisbane

Call me and I will help you

Is this you? You are very good at what you do but you are not making enough money to make ends meet.  You are passionate about what you do.  Customers love your work but still you are not profitable.

You are a motivated, hard-working person.  You live in the suburbs with your family.  You are independently minded and, like millions of other Aussies, you are giving business a red-hot go.

But what started out as a dream is starting to feel like a nightmare.  Your path to freedom is quickly becoming your financial prison.  As much as you try, you can’t pin-point the problem.

With children at school and a mortgage to pay, stress levels are rising. You are not sleeping.   More money is going out than coming in.  Business and personal debt is blowing out.

Your day of reckoning is coming fast.  You have to make a difficult decision – do you tip more money in, or do you cut and run?  If you stay, you risk bankruptcy.  If you shut up shop and get a job, it will take you a decade to recover.  It is a terrible feeling.

Your other option is to seek help.

From my experience, your problem is likely to be lack of financial management.  Your skill set is centred on the products and services you sell.  However there is more to know in business.  Financial management and control is a very common blind spot.

A common example …

“If your product and service costing is wrong, your profit margin could be less than you think.   So, no matter how good your products and services are you will never make money.”

My solution

I will personally come and help you.  I have no system to sell and I don’t have a magic wand.  Nor do I have any intention of writing a ‘door-stop’ size business plan.  I will just roll up my sleeves, stand beside you and help you.

What you are hiring is grey hair; the result of 30 years diversified business experience.  There are no guarantees, but if your business is not too far gone, it shouldn’t take long to point you in the right direction.  From there I will help you to prepare a very short, concise action plan.  From there, we can talk about ongoing business coaching.  The cost to you will be nowhere near as great as the cost of doing nothing.

Call me now for personal attention

Gary 0408 756 531

Business planning – income is the foundation of your wealth

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Critical to business planning is the science of financial management.  Financial management is all about the source and use of money.  I refer to it as a science because whether in business or in personal finance, there are certain rules you must observe in every day financial management.

One of the foundation stones of financial management is:

Your career and therefore your income provide your wealth!

Your income is the foundation of all of your wealth building.  Therefore, your prime focus should be on generating income, rather than borrowing money.

Your focus should also be on saving your income instead of spending it.  It is the part of your income that you save that forms the backbone of your future investments.

It is most likely that you will make far more money from your business or profession than you will from your investments.  Your investments can make your future more secure and your retirement more prosperous, but without income, investments alone will not take you from rags to riches.

Only very rarely does someone make a large fortune from investments.  When that happens, it may appear to be a hot tip or good luck but it is generally achieved by someone with a high income and savings potential.

When planning investments, your priority should be to preserve what you have.  Preserving what you have will be an unlikely outcome if you pursue complicated schemes that promise high returns in the short term.

Until next time!

Gary

For an introductory look at Personal Finance it is hard to go past this book.

TURNING MONEY INTO WEALTH (5th Edition) by Arthur J Keown.

→ available now in the Amazon library → top right on this page → → →

This is an American introductory finance book written by a Professor of Finance at Virginia Tech Pamplin College of Business.  Although it is primarily a text book, it is a surprisingly easy read.

It has to be said that USA tax laws and other regulations contained in this book are different to those in Australia but the author provides a great presentation of the fundamental principles of personal finance, which are universal foundation principles.   That is valuable information if you are looking to enhance your financial education.

Starting up a business – The pitfall of giving away equity

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When starting up a business, it is common to see inexperienced business starters with no financial management skills, prepared to barter away equity (ownership) in the early days in return for a much needed service.   For example:

They seek to establish a website as cheaply as possible, even to the extent of offering a e.g. website designer part ownership of the business in lieu of payment

Now I am not against website designers.  It’s just that new business owners think that a website is the first thing they need.  They often see a website as the answer to all their sales and marketing prayers.  Nothing could be further from the truth but that’s another story.

If this is you, consider this!  While giving away a slice of your business may seem to be a good idea at the time, you won’t think so in a couple of years time when you have a million dollar business and a business partner who bought a good slice of it for the price of a website (e.g. $1,000 – $2,000 or so), and now can do nothing else but e.g. design websites.

The first mistake you made was seriously undervaluing your business in the first place when you were starting up the business.  You took the pessimistic view and figured that you were giving away nothing in return for a website with a real dollar value.  What a great deal hey?

Silly ole you!  Deep down, you didn’t really think you would succeed did you?  You didn’t seek advice and you didn’t stop to think that a shareholder in your business is a permanent fixture; as permanent as a married spouse and potentially just as expensive to separate from.

Nothing deteriorates a business relationship faster than a person who doesn’t pull their weight.  After a year or two of having the website designer as a passenger in your business, you will be seriously regretting having this person as your partner.  Oh, a ‘silent partner’ you say?  Trust me, they are rarely silent.

Let’s say you gave the web designer 20% of your business in return for a $2,000 website when you mistakenly valued your business at zero.  When your business grows and is valued at $1M, that 20% share is going to be worth $200,000.   I hope it was a good website.

But wait, there’s more!  The shareholder may not want to sell.  By this time, you might be the best of enemies.  It may cost you a lot more than $200,000 to buy back your business.   And do you have that kind of money sitting in the bank for a moment like this?  The answer is usually ‘no’.

This is why it is so important to seek advice.  Any competent business coach or adviser will tell you that having a partner, with skills you may use only once, and who makes no other contribution except for a couple of thousand dollars of labour and expertise, is a bad investment and an even worse permanent relationship to get into.

For more reading on starting up a business and smart financial management, read my Life Balance series at http://www.aikido-secrets-to-calm-success.com

Until next time!

The Coach

Starting up a business – cutting corners can be a financial management killer!

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Gary Weigh – The Coach

Cutting corners on a lean start up budget is a very common ‘kill your business’ practice.  When starting up a business, it is done because of lack and necessity.  However, in terms of financial management, it could be something you regret later on.  One of the most common examples of corner-cutting that I see is….:

Seeking the cheapest quote for equipment and technology just to get started, even though it is unlikely to handle anything but the lowest levels of activity!

Second rate equipment and technology may be fine for low levels of business at the time of initial start up.  However, they may not be able to handle the increased volume of transactions and information that could multiply quickly as your business grows.

It could all be obsolete in a matter of weeks or months.

As customers hear of your leading edge offering and sales activity increases, expansion is a certainty.  If you cut corners however, expansion may prove fatal.  It may mean starting again with a complete scrapping of your low rate equipment and technology.

This means that you will have to invest money twice over in the first few months of trading.  Not only that!  Expansion may also mean hiring people and finding larger spaces.  Expansion is generally a time of tight cash flow.  It could spell the end of your business.

It seems ironic that your business could fail at a time when you have just weathered the storm and things never looked better.  But it happens a lot.  It is one of the common causes of business failure.

For more reading on starting up a business, financial management and your path to financial wellbeing, start reading from the library to your right!

Also visit http://www.aikido-secrets-to-calm-success.com

Until next time!

The Coach

Starting up a business – The importance of financial management

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How much start up capital will I need? In my experience, the most common way for people starting up a business to estimate their start up capital needs, is to have an educated guess.  The problem is that the guess is not at all an educated one.   Hence the need for thorough business planning and competent financial management!

Those who do try to work it out generally underestimate what it takes to start a business.  Inexperience causes them to not consider many of the issues and costs involved.  Hence ‘initial set-up’ budgeting is done considering only the matters (and costs) that appear obvious to them.  This is often well short of commercial reality.

Many people thinking about starting up a business have no idea about the extent of what is actually involved.  Therefore, they are oblivious to all of the costs involved.

They wonder whether they should trade as a sole trader, a partnership or a company.  They are generally oblivious to the issues surrounding an ABN (Australian Business Number), business name registration, intellectual property and taxation.

It would be so easy to go see an accountant who would outline all the relevant issues and their costs but to many, that means having to spend money on stuff that seems irrelevant to the core task of starting up a business.

Hello!! You can’t hope to be in business without spending some money now and again.  Let me assure you that buying good advice is what the smart people starting up a business do.

For more reading on financial management and your path to financial wellbeing, visit http://www.aikido-secrets-to-calm-success.com

Until next time!

The Coach

Financial wellbeing – 5 Common mistakes in financial management

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  • The first common mistake in financial management is to rush straight into ‘a flurry of activity’ without first setting goals or doing any planning.  It is critical that your ‘flurry of activity’ is productive and prioritised towards achieving your goal of financial wellbeing.
  • The second common mistake is procrastination.  That is, doing the thinking, the talking and maybe even some planning but never getting around to doing any of the activity to make it happen.
  • The third common mistake is never committing plans and budgets to paper.  The problem with keeping it all in your head is that it is easily forgotten.  The plan in the head can easily change to follow an outcome.  The plan must be on paper, out there and shared.  That’s what makes it real for everyone involved.  The plan must come first and outcome second; not the other way around.
  • The fourth common mistake is learning (what passes for) financial management and wealth building from friends and family.  Unless the advice giver is a trained professional, the advice is next to useless.  Smart people surround themselves with much smarter people.
  • The fifth common mistake is to believe that debt is the answer to satisfying every immediate need.  Debt has its place in financial management but it must have a productive purpose; it always has to be repaid; and you must always maintain the capacity to repay it.

For more reading on financial management and your path to financial wellbeing, visit http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary

Financial management – the key to home and business success

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In the quest for financial wellbeing, the two skill sets that the vast majority of people lack are financial management and wealth building skills.

Both are needed to run a successful business and a run a successful household.

Lack of financial management skill is one of the main reasons for business failure in Australia.  It is also the reason why the amount of personal debt is so high.

As a business starter, you spend years learning a trade or profession only to find that you possess only a fraction of the skills required to run a business.  One of the glaring omissions is financial management – the ability to manage your own money.

In your home or in your business, it is highly distressing to consistently run at a loss.  That means debt must be accessed just to make ends meet.  Not only is it a stressful situation to be in, but parents are inadvertently teaching their children some terrible financial habits.

The first step in financial management is to do an honest assessment of your situation.  Being honest with your self is paramount.  Seeking help is the second step.

You may think that you are in a desperate financial situation, all alone in a place that no one understands, but you are wrong!  Talking to a professional adviser can make a world of difference.  Your situation is not uncommon and there are some practical steps that can be taken towards a solution.

The process of changing from bad to good financial management is like quitting smoking.  You need to recognise you are addicted to bad habits.  You have to want to quit and be open to learn new habits.

The new habits will include some simple business planning or lifestyle planning and the preparation of a budget.  The budget shows you the expected result if you follow your plan.  This will be your blueprint for a new direction to financial wellbeing.

The principles of financial management are the same for your business and for your household.  Whatever else you may believe your business to be, it is a valuable source of income to finance your precious family’s lifestyle.

For more reading on financial management and your path to financial wellbeing, visit http://www.aikido-secrets-to-calm-success.com

Until next time!

Gary