The 'one number' approach to business transformation

1. Where’s your profit? The ‘One Number’ Approach to Business Growth: Balancing Sales & Resources

2. The ‘One Number’ Approach to Business Transformation £ Financials Value Added for the Critical Resource Limitation = VA/CRL 1 number Connects 3 critical business areas Operations Sales & Marketing

4. Machine shop

5. Antique clocks

6. Professional services

7. Office supplies

9. Financial Link to the Critical Resource Limitation The Break-Even point is that turnover figure that will result in a profit that exactly balances the overheads: Break-Even Point = Overheads Gross Margin %

10. Financial Link to the Critical Resource Limitation But we don’t want to break even do we? If Break-Even turnover is >90% of actual = then very high probability of failure If Break-Even turnover is between 80 – 90% of actual then probable survival – but difficult to grow If Break-Even turnover is <80% of actual then survival is likely and self-funded growth is possible

12. Machine shop

13. Antique clocks

14. Professional services

15. Office supplies

17. Financial Link Overheads = £190,000 Critical Resource Limitation = 60,000 litres Value Added to Break Even = ½ £190,000 60,000 litres = £3.16 Value Added Target = £3.16/90% = £3.50

18. Financial Link Old St. Andrews Whisky... CRITICAL RESOURCELIMITATION 60,000 litres of whisky Added Value c £15.00 per Litre TOTAL £900,000 If the break-even point was £3.15 where would YOU focus….?! Added Value c £1.00 per Litre TOTAL: £60,000

19. Financial Link Old St. Andrews Whisky... Gross Margin was 26% in BOTH cases! CRITICAL RESOURCELIMITATION 60,000 litres of whisky Added Value c £15.00 per Litre TOTAL £900,000 If the break-even point was £3.15 where would YOU focus….?! Added Value c £1.00 per Litre TOTAL: £60,000

20. Sales & Marketing Link to the Critical Resource Limitation You are looking for PRODUCT and CUSTOMER COMBINATIONS That will maximise the Value Added for the Critical Resource Limitation

21. Sales & Marketing Link

22. Applying the Value Added per Critical Resource Limitation Dec 2007 Sales £350k Cost of sales £258k Gross profit 26% £ 92k Overheads £190k LOSS (£98K) Value added/litre = £1.53 Dec 2008 Sales £501k Cost of sales £289k Gross profit 42% £ 211k Overheads £161k Profit 10% £ 50k Value added/litre = £2.69

23. Your World Example Workshop What does the P&L account look like? Deal with false P&L/Balance sheet cost allocation What is the Critical Resource Limitation and how much of it is there What is the break even point for the CRL? What is the target value for the CRL? Good job or bad job?

24. Sales/Profit/Break-EvenTracking Tools

25. Will it work in the construction industry?: MHS Homes Construction Division turning over £10m a year and losing £120k per month for last 15 months July – September introduction of the ‘One Number’ approach October PROFIT £40K for the month Following year PROFIT £350K Last year PROFIT £800K ‘I was astonished... This was the fastest and most complete transformation from loss making to profitability that I have ever seen’Ashley West (Non-Executive Director MHS)

26. 5 Steps to Business Transformation: Determine your Critical Resource Limitation Establish your TRUE overhead Work out your Break-Even and Target Value Added for your Critical Resource Limitation Figure out your CUSTOMER x PRODUCT marketing COMBINATIONS to maximise VA/CRL Flex pricing & track progress One Rule: Maximise the Value Added for your Critical Resource Limitation in everything you do!

27. 5 Steps to Business Transformation: If You Only Take Away One Thing From Today... The key to increasing profitability and relaxing the organisationis: NOT Gross Margin % But Maximising the Value Added for the Critical Resource Limitation!

28. That’s all folks… Bob Gorton bob.gorton@hardhatbusiness.com www.hardhatbusiness.com 01474 872152 HARD HAT Business Advice The Enterprise Centre, 55 Redhill Wood New Ash Green, Longfield, Kent DA3 8QP