Understanding financials, as easy as riding a bicycle? Imagine being introduced to a bicycle for the first time as an adult. You are told all you have to do is hop on and start peddling, it’s easy! You think about it and you have your doubts. After all, you have had classes on Newton’s Law of Gravity and you understand that the force which caused the apple’s acceleration (gravity) must be dependent upon the mass of the apple. Common sense tells you that with your mass, you will hit the ground hard when you tip either to the left or the right. Yet, you see small children enjoying riding their bicycles without falling. How does this work, the rider should tip and fall, this riding a bicycle just doesn’t make sense. It won’t make sense until you are taught how to ride the bicycle and more importantly until you believe you can balance the bicycle and NOT fall to either side. I am suggesting you think of financials like riding a bicycle, they will not make sense until you are taught how they work and more importantly until you believe you can understand them. I have worked with several artists […]

By the numbers; “Where do Discounts come from, revenues or profit?” Many of my clients have sales staff and pay sales commission on “top line” revenues. I often get the question regarding my opinion on offering a “discount” to close the deal. I usually give The Boss a typical consultant’s answer like, “It depends.” I begin the discussion by asking The Boss where the discount is coming from. They look at me with a somewhat puzzled look and ask, “What are you talking about?” Most of the business owners I work with see discounts coming solely off of “top line” revenues. For example, they may have a $10,000 proposal that is in a competitive situation and their sales person believes they need to discount the job in order to get the work. Together they may believe a $1,000 discount is necessary to “close the deal”. A 10% reduction in price to get the job and reach their revenue goals, keep their people working, and possibly steal a competitor’s customer is acceptable in their minds. It very well may be but we need to understand the full impact of the discount as it pertains to net profit not just “top line” […]

Does your Company have a GPS and if so, do you use it? A few years ago I bought a GPS for my car and I liked it so much I bought one for my wife’s car also.  Eventually we got GPS service on our smartphones and we tend to us that GPS more often.  I recently bought a car that has a GPS as standard options and I like it even more.   It works best when there is a detour or when I am going to a new client’s office and I don’t want to waste time guessing what route to take.   In Q4 or early in Q1 I work with my clients to create an annual operating budget.  We look at past performance, we look at all costs (valid numbers will work the best but don’t let iffy numbers stop you), we look at revenues because most business owners will track revenue fairly accurately but may fall short on tracking operating costs.   We identify profit centers for the business and determine the gross profit per profit center best we can with the data we have.  The more valid the past data the more accurate the pro-forma annual […]