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Friday, 30 October 2020 18:09

Financial Incompetence is No Excuse!

Written by Dave Luehr

Index

2. The difference between profit and cash

 

It is important to know the difference between profit and cash. I know many businesses that are actually profitable, while running negative cashflow.

 

That is something I learned the hard way back in 1991. I grew my business so fast I had too much work in process and ended up draining all my cash. In other words, I was buying parts and materials for cars I wasn’t going to begin repairs on for several more weeks.

 

Another area that chews up cash in an otherwise profitable business is accounts receivable. I learned early on I needed to keep my paperwork and supplements in real time with the vehicle repairs so I could keep A/R to a bare minimum.

 

3. Breakeven

 

What is breakeven? My friend Bruce King describes breakeven as the day of the month where you make exactly zero money!

 

As funny as that sounds, he is exactly right. Breakeven is usually described as a moment in time, typically a day in the month, when the shop has earned enough gross profit from revenue to meet the shop’s indirect costs.

 

Simply understanding a shop’s breakeven number allows proactive action from management to reach the number as early in the month as possible and to start accumulating profit during the remaining days. And, unless a shop owner knows his or her numbers every day along the way, compared to a goal, the shop is flying blind!

 

Finally, there are several numbers that shop owners should keep track of every single day.


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