Broken break-evens leave a lot of "don't knows" in a business

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"Adam, over the past six years, I've had the pleasure of 'bumping into you' on at least three business and marketing related forums. Your contributionsto discussions have always been courteous, astute, incisive and practical,delivered with good humour, and based upon 'real-world' business experience. You are clearly an experienced business professional who actually knows what he is talking about. I wonder if your clients know what a gem they have in you? As one business professional to another, I salute you.

Good Wishes,
John Williamson - The Wealth Coach
www.thewealthcoach.com
www.retaildisplaysecrets.com

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I just LOVED "7 Clues to a Profits Leak".

Steven Walker - Profit Improvement Advisors
Calgary, Canada

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You will be proud how your protégés are proceeding! We have expanded the business to Katherine and Alice (Tennant is also on the list). T he catering side of the business is far less stressful and is actually profitable, now that we only take the good jobs.
We will never forget the assistance you gave us in re-inventing our business!

Karen Sheldon

Managing Director

Karen Sheldon Catering

Darwin, Australia

+++++++++++++++++++

The chap is Adam Gordon whom I have known for many years. He is a former resident of Darwin having lived here for perhaps 25 years, is an excellent communicator and has a very good appreciation of small business, business plans and all that goes with it. In fact Adam is regarded as a business guru.

Charles Wright, QS Services, Darwin, Australia

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Thanks for the catch-up the other day. It's great to be working with a legend in the small business community.

AJ Kulatunga, BLKMGK ICT

Darwin, Australia

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The 7 Clues is a great.

What I like the most in the Seven Clues report is that it clearly explains that accounting is merely a subset of proper financial management and

that only the business owner can practise financial management. The accountant does the accounting, and in doing so supports the business owner's financial management. And the business owner uses the accountant's information, but relying on the accountant to do full-blown financial management is short-sighted.

The report nicely "grounds" an otherwise complex topic which many business owners are afraid of touching, so they often move ahead in blissful ignorance. The water hose and the soggy soil under the leak makes an excellent and easy-to-comprehend example, upon which the financial management concept is nicely built.

Tom "Bald Dog" Varjan, Organisational Provocateur Dynamic Innovations Squad
Personal and Firm-Wide Performance Improvement for Management Consulting Firms

Vancouver, BC Canada

+++++++++++++++++++++++++++++
You have played a very important role in my development in business.

You were there with the right information at the right time, I thank you for that.
By adding the next level of systems, and marketing knowledge that you brought to the table we able to identify our objectives, acknowledge the gaps in our business and put in place the planning so as to achieve those objectives. Within 5 years we achieved 9 of our ten stated objectives. In that same year we won the NT Telstra Small business of the year"

Greg Haigh
Director - Trade Group
Regional And Northern maintenance services
RANms

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Recent newsletters include:

How well do you know your market?
How turning away customers leads to profits
How to create Superior Value
How to win against your competition
Do you need to make changes to your business?
"Our customers are costing us too much!"
Why competition is good news
What makes a web site effective?
Most businesses have one, but...
How to improve your quotations
How to raise prices without losing sales
Is your business resilient?
How to develop a new product in your niche
How big is your profit gap?
How discounting destroyed value
Benchmarking for best practice
From all customers to some customers
How to take the guesswork out of growth
Should your USP be based on logic or emotion?
How to triple your quotation success rate
How to dramatically improve your quotations
How to make more effective decisions?
How to develop your USP
Do you want to make better planning choices?
Are youmaking these mistakes in planning?
How to use SWOT properly
Does your sales conversation balance the scales of justice?
The perils of profitless cash flow!
So what is more important, cash flow or profit?
Are you getting value from your pricing?
Do you report to yourself monthly?
Follow the money trail!
Performance also counts!
Get more bang for your buck!
Without measurement there can be no improvement!
Where would your business be without customers?
Using your monthly report to improve your profits
Just who is your customer?
And what do you know about your customer?
How branding can increase your profits!
Can branding make you more money?
How to balance the value equation
Tilting the balance in your favour
How to pin the tail on the donkey
Are you groping in the dark with your real cost of labour
Mastering core marketing principles
Building a 5P marketing plan
Profit leaking processes
Should you be trying to increase or decrease cash flow
At times it is folly to hasten
5 steps to create your future
What will be the X-Factor in 2009
Lies, damn lies & statistics
How to use a squad profit leak detectives
Confidence leads to action
Increase sales - so easy to say
So you want to know how to increase sales
Is selling a necessary evil?

Broken break-evens leave a lot of "don't knows" in a business

Is YOUR break-even broken?

Break even is one of those useful tools of which most businesses don't make sufficient use. At its simplest knowing how much you need to bring in as income each week or month gives you a good guide as to the sales levels you need to target.

And if you set the target then you might just decide to think through how you will achieve that target. Well, that's better than veging out and just letting it happen, isn't it? Of course you can be a little more sophisticated than that and make your averages subject to the seasonal variations of your industry.

But break even is a much more useful tool than that.

As we said in an article we posted last year ("What is break even and why is it so important?") you can use break even analysis to test:

Pricing
Quoting
New Investment
Cost justification
Setting sales objectives
Product Line analysis
Profit planning

It is both a management tool and a marketing weapon.

Easy to say and in fact, as the above article points out, it's not too hard to use. But what if the costs on which you base your calculations are wrong?

This is why the issues raised in the last few blogs about misallocation of costs and not knowing your real costs are so important.

Put simply, if the figures on which you base your analysis, whether it be for marketing or for management purposes, are wrong, then your analysis will be meaningless, if not misleading.

For example:

Misallocating variable costs (cost of sales) to overheads will lift the fixed cost level you need to recover before you break even. And if your pricing is based upon a margin above costs, then you will have also reduced the actual margin available to recover those fixed costs; a double whammy.
Not knowing your real hourly cost rate - As we said, if you don't know your costs, then you don't know your profit margin. And if you don't know your margin you don't know how much profit you could, or should be making. .

In neither case will you know how much business you have to do for the year before you start to make a profit for the year.

And if you don't know that, then you can't develop a soundly based strategy to improve profitability for the year.

That's an awful lot of "don't knows". And no way to run a business!