#3 GROSS PROFIT: The money left over after you pay
your suppliers for inventory. This is your discretionary income.
#4 OPERATING EXPENSES: The cost to meet sales
goals and to keep the doors of your store open (e.g. office
expenses, telephone, utilities, insurance). These are discretionary
expenses.
#5 PRETAX NET PROFIT: Any money left after
paying all operating expenses. From this, you must do the
following:
• Pay income tax.
• Pay your debt burden.
• Provide for other goals and objectives.
Measuring business performance is a numbers game
Profit Pillar #1: NET SALES
"We all live by sales." That's a favorite quote of mine
from my German friend Herr Lange. And he is absolutely
right. Sales is the activity that feeds the revenue stream of
money. Without sufficient revenue/income, the business will
eventually close its doors.
Whether your annual sales are $100,000 or $100 million,
every penny of every dollar earned in your business will go
somewhere. You must decide, up front, where you want that
money to go. If your thought process is to sell as much as you
can and cover expenses, that's all you will do. Your sales will be
just enough to cover expenses. That's why all businesses need
an annual strategic business plan to help keep focused on a
destiny. As we move forward, please remember: The only way
to keep score in business is to count the money.
On my desk is a copy of a publicly traded company's
annual report. It is from one of America's top 500 companies.
This document contains 53 pages. On page 11, an overview
stated that fiscal 2009 was challenging. Using the same simple,
generally accepted accounting principles as used by much,
much smaller companies, the company's Results of Operation
state that it made the following report to demonstrate its
profitability. I call your attention to the report's simplicity.
Results of Operation
Net Sales of $20.9 billion, a decrease of 16 percent.
The bottom line ends with Net Earnings of $2.136
billion. Listed between these two Net numbers are a few
items: Gross Profit dollars, including percent, Operating
Expenses, including percent, earnings before tax, and percent,
plus interest expenses, and Net Earnings after tax is 9.7
percent. One line is listed as other deductions. Since this is a
manufacturing company designing and producing goods for
retailers, there is complexity in its operation.
OUTDOOR POWER EQUIPMENT
NOVEMBER 2013
17
