Gehman Accounting Blog

Lost in the Swamp

Ken Nisly - Nov 5, 2020 11:52:19 AM

It is impossible to get where you want to be - if you do not know where you are!

I turned on my phone’s GPS, and my heart skipped a beat. All I saw was a spinning circle, and it was clear to me that it was not going to show me the way back to camp. I was on a hunting trip with my sons in the swamps of Southern Arkansas, and we were a mile back in the swamp, far from civilization. Until I regained service, the only thing I could do was get out my backup compass and see if I knew how to use it.

swamp sq

Thankfully, I did make my way out of that swamp and back to camp that night, but I never forgot that experience. To find my way again, I needed two things: 1) I needed to know where I was and 2) I needed something to point the way.

Too often, we small business owners have a goal that we would like to reach in our business; but the trouble is, we do not know where we are financially. We’re not sure how to reach our financial goals or even how to tell when we do. We continue to question… What do my numbers mean?

This question then swamps us with more questions. Are the jobs we are doing profitable and is my revenue covering my operating expenses? How are my bids comparing to my competitor’s bids and am I confident that my bids are a win-win for both me and my customer? Can I afford to purchase more equipment or hire more employees? Can I afford not to? It seems like the questions never end!

These questions can make us dizzy and even fearful at times. We question whether it’s even possible to set realistic goals and make plans to grow our businesses if we do not know where we are financially. For a business owner, it is easy to say that by this time next year or in two years from now, I want my business to be producing another $100,000 or have X amount of net profit on the bottom line. But, if we do not know where we are now, we have no clear path to that goal.

Bottom Line - The number found (positive or negative) after all expenses are subtracted from all income. Some people call this your net income. The term “bottom line” got its name because it refers to the bottom number on the income statement.

Every business owner should ask themselves these seven questions:

  1. What is my Gross Profit Margin and how do I calculate it?
  2. How do I correctly apply my company’s Overhead to a job?
  3. What is the actual amount of Profit from a job or product?
  4. Where is my Breakeven point?
  5. How much Sales Revenue will it take to reach Breakeven?
  6. What impact does adding more Overhead have on my company?
  7. How much Profit should I have?

However daunting this list may be, it IS possible to know the answer to each of these questions. You do NOT need to stay lost in the swamp!

 

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Ken Nisly

Ken Nisly

Ken Nisly and his wife live in Due West, SC, where he works for Gehman Accounting as a Business Advisor from his home office. Ken is certified as a Level 1 Instructor in Lead from Your Strengths and enjoys helping business owners learn what their individual strengths are. Ken enjoys hunting, fishing, and playing disc golf on his own 18-hole course.

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