How About a Pop Quiz?:
Walking into class after a great weekend and the teacher announces a "pop quiz". Your reaction, contingent on how closely you have been keeping up with homework, will be "no big deal" or "dread". Being up to date on the material brings a sense of confidence and minimal stress at the thought of a test. Not being prepared, however, is stressful and could ruin the rest of the day. The operative phrase in this discussion is "keeping up" and the focus is on the financial status of your business. Most business owners are familiar with financial reports - profit and loss statements, balance sheets, etc. They are usually available to owners 30 to 45 days after the month end and generally the owners will review the documents on receipt. Many owners use these reports to monitor the financial status of their business. The information is relevant for looking at the big picture and irrelevant when looking for "real" time data. Real time data can be defined as the most current, happening today, type of data available. If you were to have a pop quiz on your business and the question was "how is business today in relation to the big picture?", would your answer be based on historic information [P&Ls from a month or two ago] or could you answer with current information? The best method for keeping current on the status of your business is knowing your daily breakeven and comparing it with the day's revenues or units sold. The breakeven point determination must be a yearly exercise for any business owner. It is a good time to review the elements used in calculating breakeven and to evaluate the contributions of those elements to the financials. For example, have fixed expenses remained constant; will expenses be different based on next year's projection? How will increased sales impact fixed expenses? Using last year's performance and the coming year's projections, calculate breakeven not only on a monthly basis, but on a weekly basis as well. There are some businesses that would benefit from knowing their daily breakeven. Monitoring your business at this level provides you consistent feedback on how your business is doing at any point in time. There will be fewer surprises when the P&Ls come in and there is more complete information available for decision making. Re-enter the pop quiz analogy. Imagine the pop quiz as an unexpected opportunity presented to you. Imagine the ease with which you would decide to take advantage of the opportunity, if you were working with current financial information. Knowing and using breakeven information can minimize stress associated with some financial decisions. ©2000-present Flight Unlimited - All Rights Reserved |
