Posted by Eric Hubbs on Thu, Jun 03, 2010 @ 01:54 PM
By Eric Hubbs
How does the saying go, "Don't count your chickens before they've hatched?" This seems to be the theme of our current economy. Word on the street is it's getting better and that there is a visible growth trend; however, it's crucial for business owners to understand what is generating the momentum and to remain cautious and calculated in our financial decisions - as difficult as it may be.
Beacon Economics presented their 2010 San Luis Obispo County Economic Outlook at the Paso Robles Event Center yesterday. Principal Christopher Thornberg and Director of Regional Research Brad Kemp spoke to a group of Central Coast professionals and delivered their economic forecast. While optimistic about the trends and growth, they remained realistic that we are not out of the woods yet. The primary sources of the spending increase are not sustainable. The equity market is up - good news - but based on the facts, the P/E ratio is overvalued, and it is evident that the market is not consistent. Even with the impact of the government stimulus, of which less than half has been spent, it's just a cushion for the moment, not a solution. And it's not an infinite resource. If we do not make educated decisions right now, we may find ourselves backpedaling.
They cited serious structural problems, a politically motivated band-aid covering the severe financial wound. Rob Garcia of Rob Garcia Wealth Management compares it to a poorly run business thriving in a good economy - the problems don't surface until bad times, and then it becomes that much more difficult to save the struggling business. He said until structural adjustments are created and implemented to improve the business operations, "it's like kicking the can down the street."
That's not to say there is no hope, because the good news is - there is! There is opportunity, and it takes creative actions to recognize and capitalize on them. Although numbers indicate San Luis Obispo County has experienced an extended recession, greater than surrounding counties, they also indicate we have faster recovering markets within arm's reach. Businesses within San Luis Obispo County can target these outer local markets and tap into their potential. Utilizing powerful resources to gain real knowledge and understand the present trends is vital, and can have a tremendous impact on the success of your business.
To help you make more educated decisions, view or download the 2010 San Luis Obispo County Economic Outlook presentation by Beacon Economics at http://www.beaconecon.com/.
We want to hear from you. Please share your thoughts, reactions, and creative solutions by commenting below.
Posted by Michael Gunther on Fri, Sep 18, 2009 @ 06:22 PM
By Michael Gunther, Founder and President of Collaboration Business Growth Specialists
Financials are the foundation for every business, yet they are often the most ignored aspect. Too many business owners do not understand or even employ basic financial principles in their business - some are afraid of what the numbers might tell them and others have never been taught how to manage their business financials.
Okay, I can hear the yawns already. But what if I told you that there are two basic principles to help you better manage your money and grow your business profitability? Would that give you incentive to pay attention to your financials?
Principle #1: Understand your Gross Profit % (aka Gross Margin)
Understanding this number is a vital step toward creating a financially thriving company. Let me provide an example. Say a business generates $100,000 in revenue and they have $65,000 in Cost of Goods/Services Sold (the total cost of delivering a product or service, including commissions, merchant fees, etc.). This means their Gross Profit is $35,000 ($100,000 - $65,000 = $35,000) and their Gross Profit % is 35% ($35,000 / $100,000 = 35%).
So far, so good. Now, let's show the importance of Gross Profit when making a business decision. Say this business wants to spend $1,000 on a new ad campaign. They just need to increase revenue by $1,000 to cover these costs, right? Not so; based on our example, if they earn $1,000 only 35%, or $350, is Gross Profit and the other 65%, or $650, goes right out the door to deliver the product or service (Cost of Goods/Services Sold). One way to think of it is they have only $35 left for every $100 generated.
To pay for the $1,000 ad campaign, they need to increase revenue by $2,857 ($1,000 / 35%). It's easy to see that if a business doesn't understand this principle they can make financial decisions that are hazardous to their business.
Principle #2 - Manage Your Business with a Cash Flow Statement, not a Profit & Loss Statement
Now let's take a look at why the Cash Flow Statement is so important. Some owners make the big mistake of thinking the Net Profit number on their Profit & Loss Statement is what they have in cash to spend. Once again, this is not so. The typical Profit & Loss Statement does not reflect principal payments you make on any loans you are servicing nor does it reflect any draws that you take instead of salary through a payroll check.
If you look at your Profit & Loss profit position to manage your cash flow (instead of your Cash Flow Statement), you will struggle financially - even when your Profit & Loss Statement states a profit. You'll be spending cash that you don't actually have.
Bottom Line
Business owners who understand and apply these two principles have more control over their business financials and business strategies, allowing for better financial decisions and ultimately a profitable, thriving business.
Michael Gunther is Founder and President of Collaboration, LLC, a team of highly skilled business professionals who are dedicated to assisting proactive business owners build profitable, sustainable businesses through results oriented education, coaching and consulting services. Learn more at www.collaboration-llc.com.
To subscribe to our Business Blog for more helpful tools and tips for growing a profitable, sustainable business,
click here. For free downloadable business tools to assist you in growing your business, click here.