CEO Reading Room

The CEO's Bottom Line: Break-even Point

9/27/2023

Break-Even Point

Making profit is the reason you started your business. It's not a charity. It's not a hobby. You go through the 24/7/365 headache for something to be on the bottom line for you AFTER everyone else gets paid (yes, more money will go out of the door than stays in the door!).

Calculating your company's break-even point ("B-E") is crucial if you are going to manage your business with any peace-of-mind at all. The question, "how do I know if I'm winning or losing?", is a time-honored question among business owners. Knowing your company's B-E helps with that answer.

Classical Definition: B-E is the level of sales or revenue at which a business's total costs equal its total income, resulting in neither profit nor loss.

Impact on Small Business: Determining B-E helps business owners to understand the minimum sales volume required to cover all costs and expenses, and to start generating profits. This is especially crucial since businesses only get to keep a portion of each sales dollar to cover operating expenses (overhead). Many businesses use BE to determine when discounts can be offered, or when the same amount of sales brings "extra" or "super" profit. Calculating B-E allows the business owner to set realistic sales targets, to determine profitable pricing strategies, and to implement cost control measures.

Formula to Compute B-E: Operating Expenses / Gross Profit Margin.

OPERATING EXPENSES: $125,836
PRODUCT PRICE: $39.99
PRODUCT COST: $11.32

Before you perform the computation, you must know the Gross Profit Margin ("GPM"). GPM is the percentage of each sale that is available to contribute toward overhead after the direct costs have been deducted. In this case, the GPM is 71.7%. Therefore, the $125,836 is divided by 71.7%, or .717, and the result is $175,504.

B-E: $175,504

Based on these numbers, the business needs to generate $175,504 in sales at 71.7% GPM in order to cover the direct costs of those sales and to have $125,836 left over to cover the company's operating expenses.

For more information on calculating your breakeven point, come to Office Hours here

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Boardroom Development Series: Unleashing the CEO

9/20/2023

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Unit 1 - Laying a Solid Foundation
Embrace your vision, set clear goals, and craft a business plan that aligns with your values. Lay the groundwork for success by staying focused on your mission.

Start small, but dream big. Every great empire begins with a single step. Take that leap of faith and let your passion drive you toward greatness.

Don't fear failure; embrace it as a stepping stone to success. Learn from setbacks, adapt, and persist. The greatest innovations often arise from the ashes of adversity. Sometimes, getting 'how-not-to-do-it' out of the way will reveal the right solution.

Surround yourself with a supportive network ... people who are smarter and will tell you the truth. Collaborate with like-minded entrepreneurs, mentors, and advisors who share your ethical values and inspire creativity. Belong to a groups that harness knowledge and wisdom in your industry. Avoid 'enablers'.

Stay true to your ethics. In a world of shortcuts and compromises, your unwavering commitment to integrity will set you apart and attract loyal customers. Do not succumb to the temptation of 'going along to get along'. People can see your inconsistencies, even when you can't. Do not concern yourself with meeting the standards of others. Instead, meet the standard that you have set for yourself. People like doing business with people that they can trust.

Unit 2 - Navigating Challenges
Never miss an opportunity for growth; adversity will always have a higher purpose and a silver lining.

Break free of the ties that bind you; the ties that others put on you (inherited) as well as the ties that you put on yourself (earned).

Cast wider nets to fill your own holes; people that live different lives typically offer different solutions.

Put yourself into the stream of goodness; find where and how relevant information, expertise, or resources are gathered on a regular basis.

Learn how to take a punch – in life and in business; it’s not about the resistance or the obstacles that you encounter but rather about how you overcome it all … as if you had a choice.

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CONSIDER YOUR SOURCE

5/29/2023

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by Gerald Anderson, MBA
© 2023

It is impossible to go through life as an entrepreneur without occasionally needing business advice or assistance. The problem is that the wrong advice can easily take you, and your business, down the road better left un-traveled – costing you money and peace of mind every step of the way.

Sustaining a successful business is a multi-faceted task, and no business owner/manager is an expert on everything. Business owner/managers often need help to simply be more profitable. And there is no shortage of sources willing to provide you with their opinions and recommendations on how to do so. Everybody’s got an idea. Friends, family members, fellow choir members, ‘consultants’. The list of potential sources is endless. However, not all advice is created equally.

In business today, it is common for sales professionals to hold themselves out as ‘consultants’ of one sort or another. Ostensibly, this makes their intended prey feel as though they are there to help them. When, in fact, the ‘consultant’ may have something to sell them – the perfect pre-packaged solution that just happens to solve your problems. A software package. A photocopier. Advertising. A business opportunity. Something.

Apparently, a lot of businesspeople have become familiar with this sales game. When I tell a business owner that I am a Management Consultant, I will inevitably have to tell them within the next 30 seconds that I am not a salesman in disguise with a product in tow. But, a businessperson that has never experienced that sales game may find out how it works the hard way. Every now and again I get reminded of how much potential damage can be done if a businessperson seeks the wrong advice from the wrong person.

I was listening to a local radio show the other day and the topic was business development. One lucky entrepreneur got to bring their product (in this case smoothie drinks) into the radio studio and a panel of local ‘marketing consultants’ will give her some on-air advice to “do better”. They sampled the products; they hummed and smacked their lips for full effect. (For background purposes, the business was a smoothie and juice concessionaire located inside of a major grocery store in Inglewood).

Of course, the business owner thought that increased sales was the answer to their problems. And, one by one, each one of the panelists gave their suggestions on how to improve. When each of them suggested that the business owner needed to do more advertising, I could not believe my ears. I could not believe my ears in terms of what they recommended, and what they did not. In the privacy of my own car, these panelists were the stupidest consultants in the city.

But, after several minutes of listening to this gross misappropriation of trust, Jupiter realigned with Mars when the panelists revealed that they thought all the business owner needed was additional advertising, and that their own newspaper, or their magazine, or their event, was the perfect advertising or promotional vehicle for her to get back on track.

Of course, they thought that. What else would they think?

I was raised not to hate another person’s game, but I couldn’t help but to think of how much money this business owner stands to lose by choosing first to advertise, rather than some other less costly methods to increase profitability. After all, advertising can drive sales, but it’s also expensive and the effect in this case may be marginal, if measurable.

A ‘real’ consultant – not a salesman in disguise – would have first helped the business owner/manager understand that smoothie consumers normally buy more on impulse than planning. I like a good smoothie, but I can’t remember the last time that I made a special trip just to get one. Most smoothie customers don’t go out for smoothies, but rather will pick a smoothie up if they see a business, or an ad, at the right time while they are out (unless they are “special” smoothies!). Additionally, a ‘real’ consultant would have recommended some other measures to the business owner that may very well increase profitability – first considering those measures that cost less yet yield the desired results. This is especially so where the business profit problem is due to a “leaky bucket” (consultant-ese for a business that has strong sales, but low profits), and everyone knows to plug the leaks in the bucket BEFORE putting more water into it.

For instance, the business owner could have looked at her numbers to see where the sales dollars were going after they came into the company. Whether it be payroll, or product costs, or insurance, or some other line item on the P & L, there are always costs that can be cut without sacrificing quality of service. To improve profitability, business owners/managers always want to first look at cutting costs before generating additional sales. That’s because each dollar saved goes directly to the bottom line whereas only a percentage of sales dollars make it home. After costs are cut and bottom line profitability improves, then additional sales yield more profit than they would have before.

Another method the business owner could try involves promoting her beverages to the customers of the grocery store. In-store promotion can be as simple as complimentary samples or discount coupons. Neither method costs much. These promotions may also drive the impulse that drives the sales. Before she spends one dime of her own money for advertising, she would first want to capitalize on the millions of dollars per month the grocery store spends on drawing customers into their stores. After all, I would imagine the grocery store charges a premium on her rent for this very reason.

But I thought to myself that this business owner would probably go ahead and spend the money on advertising because the ‘experts’ said she should, and because it would probably not dawn on her that they were telling her to advertise for their own good, and not hers. And it would be another classic example of how conflicting interests and perspectives can cost business owners hard earned revenue.

In business, as in life, all advice received has a perspective from which it is offered. That perspective depends on the knowledge, experience, and agenda of the ‘advisor’. That perspective may or may not be the perspective that you need for the problem that you have. Knowing why advice and recommendations are given is just as crucial as the advice itself. Simply ask the advisor why they are recommending a particular solution, and always ask for alternate recommendations. A salesman trying to shove their canned ham down your throat probably won’t have any. A true consultant will have several options. Learn the perspective of the advice you receive as if your bottom line depends on it.

Gerald Anderson is currently Director of Consulting for CEO Services Group, a small business management consulting firm. Previously, Mr. Anderson served as a Sr. Business Consultant and as Project Manager for the largest small business consulting firm in North America, performing consultation in virtually all industries throughout the western U.S. For more information, visit www.CEOServicesGroup.com .

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The Beatitudes of Pastoral Leadership

5/25/2023

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By Bishop Vashti M. McKenzie, DMin.

Blessed is the leader who hears and follows the voice of the Lord.
Blessed is the leader who has the ability to love others in spite of their sins and weaknesses.
Blessed is the leader who gains the consensus of fellowship.
Blessed is the leader who empowers others for leader ship.
Blessed is the leader who equips the Saints for service and delegates responsibilities.
Blessed is the leader who practices in teaches spiritual disciplines.
Blessed is the leader who draws upon the available pool of expert advice, wisdom and knowledge.
Blessed is the leader who manages human and economic resources appropriately.
Blessed is the leader who is a visionary and widens division for all to share.
Blessed is the leader who takes risks.
Blessed is the leader who values integrity, honesty and humility.
Blessed is the leader who knows Christ and desires others to know the same grace, mercy and forgiveness.

excerpt from: Pastoral Leadership: Help Wanted, Leaders to Serve the Body of Christ, The Pastor's Manual: For The 21sy Century, Volume II: Toward the Orders of Elder, AME Sunday School Union (2002)

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The CEO's Bottom Line: Break-even Point

Boardroom Development Series: Unleashing the CEO

CONSIDER YOUR SOURCE

The Beatitudes of Pastoral Leadership

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