the decision maker. managing a profitable company
TRANSCRIPT
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Financial ManagementThe Decision Maker
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Managing a Profitable Company
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Know your Break-Even
Break-even is the point in a business where sales income equals expenses.
Do you know your break-even?Do you know how to determine sales
needed to make a 15% profit ?Do you know what you increase in sales needs to be to cover the cost of adding a
new truck?
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Break-Even Sales
Net income equals zero at the break-even point.
Sales
Variable Expenses
Fixed Expenses
Zero net income(break-even point)
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Break-even CalculationTotal Sales = 100%-Direct Costs % (Variable Costs or COGS) = Gross Profit Margin (%)
Break-even sales = total fixed costs (operating expenses) /GP%
To make a 15% profit, deduct 15% from the gross profit margin before doing Break-even sales calculation.
To make a desired dollar profit, add desired profit dollars to fixed costs before doing the break-even calculation.
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Determine Your Pricing/Making a Profit
Labor Overhead Profit Selling PriceCosts Costs
Employee wages Operating Expenses RevenuePayroll Taxes BeyondBenefits Expenses
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How Are Prices Determined
• Labor Costs• Equipment Replacement Costs• Non-Billable time• Materials• Administrative Expenses• Overhead Costs
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Labor Costs
Sample Costs for a Field Employee
• Wages @ $24.04 per hour (2080 Hours/Year) $ 50,000 • Social Security Taxes (6.2%) $ 3,100 • Medicare Taxes (1.45%) $ 725 • Federal Unemployment Taxes (0.8% on 1st $7,000 Earned) $
56 • State Unemployment Taxes (3.2% on 1st $10,000 Earned) $
320 • Workers’ Compensation (5.0% on 1st $35,000 Earned) $
1,750• Uniforms ($25/week) $ 1,300 • Health Insurance ($500/month) $ 6,000 • Retirement Contribution (2.5%) $ 1,250 • Employee Total Compensation Cost: $ 64,501
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Non-Billable Time
Efficiency is never 100%. Non-billable time is the single highest expense a company incurs.
Non-billable time is any time that can not be charged to the customer that requires wages to be paid out. (Vacation pay, shop time, company meetings, travel, vehicle maintenance, no shows, holiday pay, sick days, recalls, warranty work)
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52 Weeks x 40 Hours Per Week = 2080 100%
Vacation (10 days) 80
Holidays (8 days) 64
Sick (3 days) 24
Training (3 days) 24
Total 192 9.2%
Hours Remaining: 1888
Drive Time (10 hours per week) 520
Call Backs (.25 hours per week) 13
Warranty (1 hour per week) 52
Meetings (1 hour per week) 52
Other (2 hours per week) 104
Total 741 35.6%
Projected Billable Hours/Field Employee 1,147 55.14%
Billable Hours - FieldMinus Paid
Time Off and
Training Time
Minus Field Non-
Billable Time
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Administrative Wages
Owner wagesOffice Manager/Bookkeeper wagesCSR/Dispatcher wagesCompany Matching Taxes 11.45%
- FICA match - Medicare- State Unemployment
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Non-Billable Time Example for Admin
Example:Vacation (2 weeks) 80 hours 3.8%Holidays (6 days) 48 hours 2.3%Sick days (2 days) 24 hours 1.2%Drive time (1 hr. a day) 235 hours 11.3%
Total Non-billable time 18.6%
You have to build non-billable time into the cost of doing business.
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Equipment Replacement Costs
This is the 2nd highest cost of doing business
Example:Truck #1 30,000/3 = $10,000Truck #2 30,000/2 = $15,000Truck #3 30,000/5 = $ 6,000Owner’s Vehicle 45,000/4 = $11,250
Total Annual Cost $42,250
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MaterialsThe standard markup for materials averages 100%.
Material markup can help to absorb some of the costs of inefficiency limiting the need to add costs to the hourly rate.
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Overhead Costs AdvertisingInsurance (Work Comp,
Liability, Vehicle, Medical)RentUtilitiesDuesOffice Expenses (phone,
supplies, postage, bad debt, credit card fees)
Professional Fees (Accounting, Legal, consultant)
TravelTrainingLoans/LeasesComputersSmall Tools & EquipmentFuelVehicle MaintenanceLicensingRetirement PlanBuilding MaintenanceContributions
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Internal Controls
Systems or Policies put in place by a company to ensure- the integrity of financial and accounting
information- operational and profitability targets are
met - and transmit management policies
throughout the organization.
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Internal Controls
What are some of the basic internal controls every company should have in place?
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Understand your Accounts Receivable
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Manage Your Accounts Payable
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Control Your Inventory
• Keep inventory secure at all times
• Require purchase orders for all purchases
• Complete a physical inventory every 6 months
• Keep inventory current (how often do items turn)
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Ways to Increase Cash Flow
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Formula for Financial Success• Have a strategic business plan• Create an annual budget• Know your numbers• Review and evaluate your financial statements
often• Manage your cash flow• Always look for opportunities for growth• Manage and control debt• Always work towards sustainable profitability• Manage company assets• Implement internal controls• Keep everyone informed and focused on goals