Barrow Boy’s Guide to Profit Business Finance Training
Barrow Boy’s Guide to Profit Business Finance Training Bazzer’s
Business Finance Training The recession has pushed many businesses in to bankruptcy, including some famous high street nam...
<ul><li>Bazzer’s business secrets </li></ul><ul><ul><li>Bazzer has a clear business objective and strategy </li></ul></ul>...
<ul><li>Cashflow is the ‘lifeblood’ of the business </li></ul><ul><li>But how do you get strong cashflow?  </li></ul><ul><...
<ul><li>Making strong profits </li></ul><ul><ul><li>The profit concept seems straightforward </li></ul></ul>But not all co...
<ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul...
<ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul...
<ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul...
<ul><li>Break-even point </li></ul><ul><ul><li>The most important dividing line in business </li></ul></ul><ul><ul><li>It’...
<ul><li>Break-even point </li></ul><ul><ul><li>Based on the principle that there are  two  kinds of business costs </li></...
<ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul...
<ul><li>Gross margin </li></ul><ul><ul><li>Gross margin  =  sales  minus   variable cost  </li></ul></ul>Sales are very im...
<ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul...
<ul><li>Break-even point </li></ul><ul><ul><li>Work out your break-even point </li></ul></ul><ul><ul><li>By dividing  fixe...
<ul><li>Gross margin </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul><li>Variable co...
Business Finance Training The gross margin and break-even idea seems obvious but not everybody gets it. Take my mate Frank...
<ul><li>Managing gross margin:  Frank’s Fashions </li></ul><ul><ul><li>Selling price each    £100.00 </li></ul></ul><ul><u...
<ul><li>Managing gross margin:  Frank’s Fashions </li></ul><ul><ul><li>Selling price each   £100.00 </li></ul></ul><ul><ul...
<ul><li>Managing gross margin:  Frank’s Fashions </li></ul><ul><ul><li>Selling price each   £100.00 </li></ul></ul><ul><ul...
<ul><li>Managing gross margin:  Frank’s Fashions </li></ul><ul><ul><li>Selling price each   £100.00 </li></ul></ul><ul><ul...
<ul><li>Managing gross margin:  Frank’s Fashions </li></ul><ul><ul><li>Selling price each   £100.00 </li></ul></ul><ul><ul...
<ul><li>Managing gross margin:  Frank’s Fashions </li></ul><ul><ul><li>Selling price each   £100.00 </li></ul></ul><ul><ul...
<ul><li>So how can Frank increase profits? </li></ul><ul><ul><li>Increase sales volume - sell at same price and gross marg...
<ul><li>So how can Frank increase profits? </li></ul><ul><ul><li>Increase sales volume - sell at same price and gross marg...
<ul><li>Managing gross margin:  Frank’s Fashions </li></ul><ul><ul><li>Selling price each   £100.00 </li></ul></ul><ul><ul...
<ul><li>Managing gross margin:  Frank’s Fashions </li></ul><ul><ul><li>Selling price each   £100.00 </li></ul></ul><ul><ul...
<ul><li>So how can Frank increase profits? </li></ul><ul><ul><li>Increase sales volume - sell at same price and gross marg...
<ul><li>Bazzer’s pukka profit rules </li></ul><ul><ul><li>Cashflow is the lifeblood of the business </li></ul></ul><ul><ul...
Look out for my Barrow Boy’s Guide to  Cashflow Business Finance Training
Business Finance Training the cost effective way to improve business results Paul Lower  FCMA
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Barrow Boy's Guide to Profit

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Short training presentation for non-financial people about how strong gross margins are the key to healthy profit and cashflow

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Barrow Boy's Guide to Profit

  1. 1. Barrow Boy’s Guide to Profit Business Finance Training
  2. 2. Barrow Boy’s Guide to Profit Business Finance Training Bazzer’s
  3. 3. Business Finance Training The recession has pushed many businesses in to bankruptcy, including some famous high street names. But come boom or bust, businesses like Bazzer’s fruit and veg stall always do well. How do they do it?
  4. 4. <ul><li>Bazzer’s business secrets </li></ul><ul><ul><li>Bazzer has a clear business objective and strategy </li></ul></ul><ul><ul><li>He knows what his customers want </li></ul></ul><ul><ul><li>Bazzer is master of the essential business finance skills </li></ul></ul><ul><ul><li>And managing cashflow is his number one priority </li></ul></ul>It’s far too important to leave to my accountant
  5. 5. <ul><li>Cashflow is the ‘lifeblood’ of the business </li></ul><ul><li>But how do you get strong cashflow? </li></ul><ul><ul><li>Ready access to additional funds </li></ul></ul><ul><ul><li>Good working capital management </li></ul></ul><ul><ul><li>Strong profits </li></ul></ul>Strong profits are the key to growing your business
  6. 6. <ul><li>Making strong profits </li></ul><ul><ul><li>The profit concept seems straightforward </li></ul></ul>But not all costs work in the same way! Revenue minus Costs = PROFIT
  7. 7. <ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul><li>Cost of one box of fruit £10.00 </li></ul></ul><ul><ul><li>Gross margin £ 5.00 </li></ul></ul>I make a £5 margin on each box of fruit I sell
  8. 8. <ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul><li>Cost of one box of fruit £10.00 </li></ul></ul><ul><ul><li>Gross margin £ 5.00 </li></ul></ul><ul><ul><li>Daily cost of renting the market stall = £40.00 </li></ul></ul>I pay £40 each day to rent the market stall pitch
  9. 9. <ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul><li>Cost of one box of fruit £10.00 </li></ul></ul><ul><ul><li>Gross margin £ 5.00 </li></ul></ul><ul><ul><li>Daily cost of renting the market stall = £40.00 </li></ul></ul><ul><ul><li>The stall rent is paid for after selling £40.00 = 8 boxes of fruit </li></ul></ul><ul><ul><li> £5.00 </li></ul></ul>So the stall is paid for when I’ve sold 8 boxes of fruit Accountants call this the break-even point
  10. 10. <ul><li>Break-even point </li></ul><ul><ul><li>The most important dividing line in business </li></ul></ul><ul><ul><li>It’s the sales level at which the business just covers its costs </li></ul></ul><ul><ul><ul><li>Below break-even sales level the business will make a loss </li></ul></ul></ul><ul><ul><ul><li>Above break-even sales level the business will make a profit </li></ul></ul></ul>I always know what the break-even point is for my stall
  11. 11. <ul><li>Break-even point </li></ul><ul><ul><li>Based on the principle that there are two kinds of business costs </li></ul></ul><ul><ul><li>Variable costs </li></ul></ul><ul><ul><ul><li>Change with sales level </li></ul></ul></ul><ul><ul><li>Fixed costs </li></ul></ul><ul><ul><ul><li>Change with time </li></ul></ul></ul>
  12. 12. <ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul><li>Cost of one box of fruit £10.00 </li></ul></ul><ul><ul><li>Gross margin £ 5.00 </li></ul></ul><ul><ul><li>Daily cost of renting the market stall = £40.00 </li></ul></ul>Variable cost Fixed cost
  13. 13. <ul><li>Gross margin </li></ul><ul><ul><li>Gross margin = sales minus variable cost </li></ul></ul>Sales are very important But gross margin is the REAL income of your business
  14. 14. <ul><li>How Bazzer runs his business </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul><li>Cost of one box of fruit £10.00 </li></ul></ul><ul><ul><li>Gross margin £ 5.00 </li></ul></ul><ul><ul><li>Daily cost of renting the market stall = £40.00 </li></ul></ul>
  15. 15. <ul><li>Break-even point </li></ul><ul><ul><li>Work out your break-even point </li></ul></ul><ul><ul><li>By dividing fixed costs by gross margin </li></ul></ul><ul><ul><li>Break-even point = Fixed costs </li></ul></ul><ul><ul><li>Gross margin </li></ul></ul>
  16. 16. <ul><li>Gross margin </li></ul><ul><ul><li>Selling price of one box of fruit £15.00 </li></ul></ul><ul><ul><li>Variable cost £10.00 </li></ul></ul><ul><ul><li>Gross margin £ 5.00 </li></ul></ul><ul><ul><li>Fixed cost £40.00 </li></ul></ul><ul><ul><li>Break-even point = £40.00 boxes of fruit </li></ul></ul><ul><ul><li> £5.00 </li></ul></ul><ul><ul><li>Break-even point = 8 boxes of fruit </li></ul></ul>Which means that once I’ve sold 8 boxes of fruit I make £5 clear profit on every additional box of fruit I sell
  17. 17. Business Finance Training The gross margin and break-even idea seems obvious but not everybody gets it. Take my mate Frank, for example. He has a nice little wholesale business selling women’s clothes. Sales and profits at Frank’s Fashions have been going down over the last year or so - Frank got in to a bit of a panic thinking how to improve things. He started talking about reducing the price of his best selling items so he could get the sales level back up. Luckily I managed to talk him out of it!
  18. 18. <ul><li>Managing gross margin: Frank’s Fashions </li></ul><ul><ul><li>Selling price each £100.00 </li></ul></ul><ul><ul><li>Variable cost each £ 75.00 </li></ul></ul><ul><ul><li>Gross margin each £ 25.00 </li></ul></ul><ul><ul><li>Annual sales units 1,000 </li></ul></ul><ul><ul><li>Gross margin from sales £25,000 </li></ul></ul>This is one of Frank’s best selling items – it made £25k margin last year Ladies cashmere overcoat:
  19. 19. <ul><li>Managing gross margin: Frank’s Fashions </li></ul><ul><ul><li>Selling price each £100.00 </li></ul></ul><ul><ul><li>Variable cost each £ 75.00 </li></ul></ul><ul><ul><li>Gross margin each £ 25.00 </li></ul></ul><ul><ul><li>Annual sales units 1,000 </li></ul></ul><ul><ul><li>Gross margin from sales £25,000 </li></ul></ul>Before After £ 90.00 - 10% Frank was going to reduce the selling price by 10% Ladies cashmere overcoat:
  20. 20. <ul><li>Managing gross margin: Frank’s Fashions </li></ul><ul><ul><li>Selling price each £100.00 </li></ul></ul><ul><ul><li>Variable cost each £ 75.00 </li></ul></ul><ul><ul><li>Gross margin each £ 25.00 </li></ul></ul><ul><ul><li>Annual sales units 1,000 </li></ul></ul><ul><ul><li>Gross margin from sales £25,000 </li></ul></ul>Before After £ 90.00 - 10% But that would reduce the gross margin on each coat by 40% !! And remember – gross margin is the REAL income of the business Ladies cashmere overcoat: £ 75.00 £ 15.00 - 40 %
  21. 21. <ul><li>Managing gross margin: Frank’s Fashions </li></ul><ul><ul><li>Selling price each £100.00 </li></ul></ul><ul><ul><li>Variable cost each £ 75.00 </li></ul></ul><ul><ul><li>Gross margin each £ 25.00 </li></ul></ul><ul><ul><li>Annual sales units 1,000 </li></ul></ul><ul><ul><li>Gross margin from sales £25,000 </li></ul></ul>Before After £ 90.00 - 10% Ladies cashmere overcoat: £ 75.00 £ 15.00 - 40 % 1,200 + 20% Frank thought the price reduction would increase sales units by 20%
  22. 22. <ul><li>Managing gross margin: Frank’s Fashions </li></ul><ul><ul><li>Selling price each £100.00 </li></ul></ul><ul><ul><li>Variable cost each £ 75.00 </li></ul></ul><ul><ul><li>Gross margin each £ 25.00 </li></ul></ul><ul><ul><li>Annual sales units 1,000 </li></ul></ul><ul><ul><li>Gross margin from sales £25,000 </li></ul></ul>Before After £ 90.00 - 10% Ladies cashmere overcoat: £ 75.00 £ 15.00 - 40 % 1,200 + 20% But margin from sales would still be 28% less than before the price cut £18,000 - 28 %
  23. 23. <ul><li>Managing gross margin: Frank’s Fashions </li></ul><ul><ul><li>Selling price each £100.00 </li></ul></ul><ul><ul><li>Variable cost each £ 75.00 </li></ul></ul><ul><ul><li>Gross margin each £ 25.00 </li></ul></ul><ul><ul><li>Annual sales units 1,000 </li></ul></ul><ul><ul><li>Gross margin from sales £25,000 </li></ul></ul>Before After £ 90.00 - 10% Ladies cashmere overcoat: £ 75.00 £ 15.00 - 40% 1,667 + 67% £25,005 Frank would have to sell 1,667 coats to make the same margin as before That’s a 67% increase in sales – it’s never going to happen!
  24. 24. <ul><li>So how can Frank increase profits? </li></ul><ul><ul><li>Increase sales volume - sell at same price and gross margin </li></ul></ul>Frank could try advertising as a way to increase sales volume
  25. 25. <ul><li>So how can Frank increase profits? </li></ul><ul><ul><li>Increase sales volume - sell at same price and gross margin </li></ul></ul><ul><ul><li>Increase price and gross margin - sell same volume </li></ul></ul>Bet you’re thinking that if we increase the price the sales will drop That doesn’t necessarily mean Frank will be worse off – look at this
  26. 26. <ul><li>Managing gross margin: Frank’s Fashions </li></ul><ul><ul><li>Selling price each £100.00 </li></ul></ul><ul><ul><li>Variable cost each £ 75.00 </li></ul></ul><ul><ul><li>Gross margin each £ 25.00 </li></ul></ul><ul><ul><li>Annual sales units 1,000 </li></ul></ul><ul><ul><li>Gross margin from sales £25,000 </li></ul></ul>Before After £110.00 + 10% Ladies cashmere overcoat: £ 75.00 £ 35.00 + 40 % Increasing the selling price by 10% increases gross margin by 40%
  27. 27. <ul><li>Managing gross margin: Frank’s Fashions </li></ul><ul><ul><li>Selling price each £100.00 </li></ul></ul><ul><ul><li>Variable cost each £ 75.00 </li></ul></ul><ul><ul><li>Gross margin each £ 25.00 </li></ul></ul><ul><ul><li>Annual sales units 1,000 </li></ul></ul><ul><ul><li>Gross margin from sales £25,000 </li></ul></ul>Before After £110.00 + 10% Ladies cashmere overcoat: £ 75.00 £ 35.00 + 40% 700 - 30% Even if sales fell by 30% Frank would be hardly worse off in margin terms £24,500
  28. 28. <ul><li>So how can Frank increase profits? </li></ul><ul><ul><li>Increase sales volume - sell at same price and gross margin </li></ul></ul><ul><ul><li>Increase price and gross margin - sell same volume </li></ul></ul><ul><ul><li>Reduce break-even point </li></ul></ul><ul><ul><ul><li>By reducing variable costs to increase gross margin </li></ul></ul></ul><ul><ul><ul><li>By reducing fixed costs </li></ul></ul></ul>Frank could replace that fancy Jaguar sports car for a start!
  29. 29. <ul><li>Bazzer’s pukka profit rules </li></ul><ul><ul><li>Cashflow is the lifeblood of the business </li></ul></ul><ul><ul><li>Strong profit is a vital source of additional funds </li></ul></ul><ul><ul><ul><li>Gross margin is the real income of the business </li></ul></ul></ul><ul><ul><ul><li>You can’t make a profit until sales exceed break-even point </li></ul></ul></ul><ul><ul><ul><li>In other words until gross margin covers fixed costs </li></ul></ul></ul>So make sure you check gross margin before you change your prices!
  30. 30. Look out for my Barrow Boy’s Guide to Cashflow Business Finance Training
  31. 31. Business Finance Training the cost effective way to improve business results Paul Lower FCMA

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