11 May Learn a New Tool
Build On The Good Of What Is Left
We are somewhere between the fear of losing and the mountainous fear of surviving with current and strenuous focus on business survival.
For today, put fear aside and learn just one tool for measuring where your business is so you can map out its immediate and future success. Math always wins.
The goal is to track how your immediate business decisions affect your profitability. This tool/ formula, Operating Margin, will show you on-going evidence to the success of your decision-making. Record this information today and then weekly through the quarter so that you can visualize how the changes made are affecting the thriving yet fragile business.
Operating Margin is a great base number to understand your current situation and then build from. Once you have the percentage, you can then analyze raising prices to cover costs, identify where to shore up and map out future spending.
Operating Margin= Operating Earnings / Net Sales Revenue
Previous annual history is nearly irrelevant now. Begin this revelation from January 1st, 2020, broken down by week. It is important to have a reference point that shows a norm and how quarantine changed that norm. A week’ span of information in our current situation is a good measurement. It can later be increased to monthly.
Let’s start with defining Net Sales Revenue.
Your revenue number will be all of your sales for the period, minus any returns, allowances and discounting. You can do the math as shown or find it on the top of your Income Statement.
Gross Sales – Returns – Allowances – Discounting / Net Sales Revenue
Now the Operating Earnings.
Begin with your gross income. Subtract all of the costs associated with running the business. Include any gross loss of perishables during this time frame. (Don’t include taxes or interest or money earned or spent unrelated to the direct operations of your business, such as a lawsuit payment or an investment.) This is your operating earnings.
It can also be found towards the bottom of your Income Statement Report.
Net Sales Revenue – Total Cost of Goods Sold – Total Operating Expense / Operating Earnings
The importance of this formula is to reveal a base percentage to build from. As business progresses, mapping the effects of managing business finance will reveal parts of the business that need attention more clearly than other tools. Informed decision-making can then follow.
A humane foundation to rebuild is key. If you are seeking help in where to begin, message me and I will be available to help you gain a clearer understanding of your crisis-current financial picture, and co-create financial solutions to moving forward. Together, we can plot out third and fourth quarter for recovery, break-even and profit.