RuthKing

Every month the company owner printed out an aged receivables list and kept track of who owed the company money and how much of it was current and past due. Unfortunately the company didn't always get their monthly financial statements in a timely manner.

One day there wasn’t enough cash in the bank to pay the fuel bill so that the field employees could get gas in their trucks. He finally woke up….the company never had a collection problem again. Pay attention to your receivable days. How do you calculate them?

A customer service representative got this call. And no, the difference was not because of inflation. It was because Dave and Steve priced differently. Upon investigation, this was typical. Dave always priced lower than everyone else in the company.

And, if your overhead cost is $40 per hour, then the $40 an hour also has to be divided by 80% because overhead is based on billable or sold hours. So the actual break even cost for the employee is $62.50 + $50 ($40/80%) or $112.50.

Tomorrow he has the opportunity to sell that room again. If he does, he has revenue. If he does not, then he’s lost that ability to earn revenue that day for that room. Labor is also perishable. If you don’t sell a person’s labor today, then it is lost.

Operating your business on a cash basis is not smart. Operating your business on profits is ok. Operating your business on profitability is best.

I had a customer who received a notice from the bank that they were taking about $8,000 out of her account because the deposit was wrong. She went to the bank, showed them the deposit slip and the copies of the checks that were deposited. She proved that they lost the check!

In the 40+ years I have been consulting with business owners, one of the most difficult things I've ever had to do was tell two partners that a third partner was stealing at least $50,000 a year from their business.

I’ve known companies to achieve a 35% gross margin on a project and still lose money on that project. Unfortunately, this is happens frequently. Here’s why: Job costing is a profit and loss statement for the work performed. The net profit per hour is the critical bottom line.