Business Alchemy 101 Lesson 18–Break Even Sales Factor (Part One)

The Break Even Sales Factor is a very simplified way to find out how much you need to sell in order to turn a profit. The most accurate way to determine this is to use the method discussed under the Contribution Margin topic, but that way takes a lot more work.

To illustrate how this works, pretend I am back in elementary and I bring lunch to school. I have 10 friends that I eat lunch with and we have all agreed to share our treats with each other every day.

One day I have a bag of Goldfish crackers and there are 20 crackers in my bag. I hand out one little cracker to each friend and then there are ten left for me.

However, the next day I have fruit snacks and there are only 8 fruit snacks in my packet, so only 8 of my friends get fruit snacks and I do not get any.

This is how the Break Even Sales Factor works. My friends are all the expenses of my company. The treat is the gross profit of the company (Revenue minus Cost of Goods Sold), and the number of treats left over is the profit I get to eat.

I will go over the equation in the next post.

Your business THRIVES on a solid FOUNDATION!

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Business Alchemy Lesson 11–How Much Pie Do You Get? (Profit)

Okay, so this is the last post on profit.  I want to address in this post the more familiar version of reporting profit, which is the Income Statement.

I have already explained how an Income Statement can be used and what it means.  When you dissect this Statement a little bit more you can find some more useful information.

Going back to the Thanksgiving dinner analogy and my mother’s pies, you remember that some of my siblings come with their families and some don’t depending on what is going on with the in-laws. Continue reading

Business Alchemy Lesson 6–Do You Have Any Idea How Fast You Were Going?

How fast is your company progressing toward its financial goals?

We have discussed your car in great detail.  I am going to add two other posts to our car analogy that will help to illustrate the importance of the different Financial Statements.

The Profit and Loss Statement—also know as the Income Statement—is your speedometer telling you how fast you are creating cash.  In order to determine this, you need more details.

The two main aspects of a Profit and Loss Statement are Sales and Expenses.  The format of the Profit and Loss Statement is a little more complex than that, but those are really the two basic items on the P & L.

The exciting part of this equation is the Sales.  This is like the gas pedal on a car.  The more sales you make, the faster you are heading toward your financial goals.  Your revenue is really no more complicated than that analogy.

The Expenses of your company are like your brake pedal.  The more expenses you have, the slower you are going toward your goal.  So it goes without saying that the fewer expenses you have, the faster you will go.

Some of the broad categories for expenses include Cost of Goods Sold, Administrative Expenses and Selling Expenses.  These are all subtracted from your Revenues to find your Net Profit.

When you subtract all your Expenses from your Sales, you end up with the total amount of money that you have made which is called your Net Profit.  Your Net Profit is your speed limit.  It tells you how fast you are heading toward your financial goals.

In summary, in order to progress toward you goal faster, your want your Net Profit to be as high as possible.  This means you need to back off on the brake pedal by lowering your expenses, and push down on the gas pedal by increasing sales.  As always,

Without Foundation, your business fails!