If I were to ask you what is the most important financial skill you need to master to
improve your ability to make more money in your business, what do you think it is?
Benchmarking? Cash Flow Forecasting? Ratio Analysis? Creating Ninja-level
spreadsheet formulas?
The answer is none of the above. It’s mastering Breakeven PLUS. Breakeven PLUS is
the fastest and most effective way to hone what I call your “Profit Maker’s Intuition.”
Once your Profit Maker Intuition is dialed up, your ability to make the right decisions
that lead to more profits goes way up as well.
When savvy business owners have a decision to make, they don’t spend hours
agonizing over their numbers. They have what seems to be a gut sense about money-
making choices that guide how they invest in and change their operations. But what
we call a gut sense is actually a deep knowledge of how their actions around pricing
and market positioning impact volume and how operational investments and changes
impact profit. A knowledge so deep that it becomes intuitive.
Their Profit Maker’s Intuition enables them to ack quickly, decisively and proactively,
protecting, if not bolstering, profits. Are their decisions always brilliant? Maybe not,
but they make brilliant decisions more frequently. Frequently enough to vastly
outperform their competition.
Breakeven versus Breakeven PLUS
What is Breakeven PLUS and how does it differ from breakeven analysis? Breakeven is
a formula that calculates the sales needed to breakeven, meaning we’re neither
making nor losing money.
Breakeven Plus uses this breakeven formula as a starting point, adding in targeted
profits to the mix. The result, Breakeven Plus represents the sales needed to reach
your profit goal. Since profits are the lifeblood of any business at every stage of its
life, why not set your based on the profit you not only desire, but require?
Breakeven PLUS for Short-Term Planning and Decision-Making
In the short run, this analysis allows us to see how changes in price and costs impact
your target profit and the volume needed to earn it. Mastering Breakeven PLUS is a
game-changer when analyzing expansion opportunities and planning for inflation or
recession. It allows to determine:
- If we increase our prices, how much can volume decrease before losing any
profits? - If we cut price to stay competitive, how much additional volume is needed?
- As we grow, we’ll need to make investments in technology, equipment or
people. How much in sales do these investments need to create to not only
cover their costs but make a profit? - In inflationary times, if our suppliers increase their prices, what do we need to
pass along, absorb or cut to protect our profit?
- If we increase our prices, how much can volume decrease before losing any
Sense a theme here? Profits are not optional. Always plan for profit (Breakeven PLUS).
Don’t just hope for it.
Breakeven PLUS Fuels Long-Term Growth and Value
For the long-term viability of a business, seasoned business owners shift from thinking
about what it takes to earn a profit to deciding how to best use profit to grow the
value of the business. Profit is an important source of capital for every business. How
much of it is already earmarked for debt repayment? What assets will you need more
of, and will there be enough profit reinvest in assets to support the growing business?
If not, how much debt should you take on? How much will distributed to owners as
compensation, draws or dividends – and when? With a profit growth mindset, you ask
and answer these questions strategically. You are intentional about how you use profit
and create your own pathway to growth.
Finally, profits are what create the value in a business. Strong profits drive higher
offers from prospective buyers allowing owners to exit in style.
Want to Advance? Build Your Profit Maker Intuition
As an owner or, your ability to make smart, swift, profitable decisions is critical. If
you are a manager or department, salesperson, or a career builder, your ability to
advance is based on your skill at building smart business cases for your causes. Those
with a strong Profit Maker’s Intuition and mastery of Breakeven Plus will win out over
those who don’t.
Next month, we’ll talk about why new businesses come out of the starting gate in a
race for profits. This is a race they will either win and thrive or lose and die. There
are no also-rans.
Resources for You
Interested in building your Profit Maker’s Intuition with Breakeven PLUS? Take our
online course series Breakeven PLUS: Your Profit Building Power Tool . Gain the
insights and tools to use Breakeven PLUS in your own business immediately. The series
includes our Breakeven PLUS calculator you can use to evaluate your cost structure
and visualize how changes in costs or pricing impacts the sales needed to earn your
target profit, just like a Profit Maker Boss. It’s an investment that will pay dividends
for years to come.
Listen Profit Soup founder, Barbara Nuss, talk about building your Profit Maker
Intuition using Breakeven Plus on our Small Bites of Business Insights podcast,
produced in conjunction with the Yum! Center for Global Franchise Excellence at the
University of Louisville.