When will we learn?

I never fail to be amazed when clients say something like "I do not know my profit last year, my accountant is still working on it". Sometimes we are having the conversation in September, nine months after year end. The accounting process is the main measurement system which tells us if things are going well, and here we are well into next year and we have no measurements for the completed year. We just hope!

So why do small business CEO's react this way. Maybe the accounting profession is to blame. They don't want us average folk to know that there is no mystery in accounting, and with just a little training, understanding financial statements is no more difficult than reading a blueprint or a job spec. Reading blueprints and job specs is something the small business CEO does routinely.

I say it is simple to understand financial statements and I stand by that statement. I promise my clients that they will say it too. All that is necessary is for our Small Business CEO to start acting as a CEO. Taking the plunge to be trained, to get the training which you need to do your job, will be the best decision you make this year.

Come on, get your life back!

Mark-up Margin Table.

In the previous post I included a table which did not format correctly when uploaded. Because it is really quite an important table showing how dramatically mark-up differs from margin and often can result in major errors in pricing.

After several tries on the blog I could not get it to work so I have published the full article on my website. Please go here.

Mark-up or Margin, what is the difference?

Almost every contractor I worked with over the last few years, and there have been many, used a mark-up formula in their pricing. In most cases it was something like $55 per hour for labor, plus materials marked up 25%. (We will talk about the labor charge later because it is more complicated)

“I need 25% margin to be profitable” they say. “So why don’t you price to achieve that margin?” I ask. “Your 25% mark-up is actually a 20% margin!” It usually takes half an hour plus a calculator and several scraps of paper before they agree that they are pricing their product/service 5% lower than they intended.

You can try it yourself, but to save a little time, here is a table:

Mark-up % Mark-up Factor Margin %
10.00% 1.10 9.09%
15.00% 1.15 13.04%
20.00% 1.20 16.66%
25.00% 1.25 20.00%
33.33% 1.33 25.00%
40.00% 1.40 28.57%
50.00% 1.50 33.33%

As you can see, the margin mark-up disparity increases as the mark-up increases. So remember, to get your 25% margin, you need to mark-up by 33.33%. By doing that you increase you profit by 5%.

You can down load a fuller version of this table here.

Training is an Investment not an Expense!

On my web-site, http://www.trainmetobeaceo.com , I have posted several new articles which you will find both interesting and informative. The one I want to highlight deals with training.

All to often, new business owners will spend money on various assets, and yet will avoid spending money on the training they need to protect those assets. I want to assure you that getting the knowledge you need to run your business well is the best investment you will ever make. It will pay for itself in a very short time, but the best part is that it will continue to pay for itself over and over again. Knowledge is an asset that never depreciates.

Give it some thought, and go read this and the other thought provoking articles at articles .