Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.
Issue link: https://idoi.epubxp.com/i/95501
SALES&MARKETING; (continued from page 33) With gross margin displayed on page 33, and using a simple Excel spread sheet, a dealer can "play" with sales goals to craft a logical gross margin goal. Expense Budget – By developing an expense budget and knowing the gross margin to be developed, the dealer can plan for a profi t because when the gross profi t dollars more than cover the expenses, the fi rm will show a profi t. The expense budget again includes all items other than the cost of materials, labor, labor burden and freight. These expenses are often referred to as overhead expenses, or the expenses needed to manage the fi rm. Break-Even – When the overhead expenses are defi ned, and gross margin is known and displayed as a decimal, the break-even point of the company can be determined. Break-even is defi ned as the point when the dollars of overhead expense can be covered by the gross margin dollars generated. It is the exact point when the company neither makes a profi t nor shows a loss. The profi t will be zero. Break-Even = Overhead Expenses ÷ Gross Margin (as a decimal) For example, using sales from the chart on page 33, if overhead expenses were $392,000 and gross margin (shown as a decimal) was .3857, Break-Even would be $1,016,334. Sales Over Break-Even × Gross Margin (as a decimal) = Profi t Again using the same chart on page 33, if sales =$1,210,000, then sales over break-even = $193,666 ($1,210,000 - $1,016,334 = $193,666) $193,666 ÷ .3857 = $74,697 Therefore with $193,666 of sales over break-even in this example and with a gross margin of .3857, dollars of profi t will be $74,697. The Importance of Inventory – Strong managers understand the importance of taking and defi ning the dollar amount of inventory on hand at the end of any given period of time. If the beginning inventory and the ending inventory are not known, then the cost of material used, the largest single cost in the garage door business, cannot be known. If material used is not exactly known, then profi t or loss cannot be known. Specifi cally, the formula is shown below, but for simplicity, think of defi ning inventory much like looking at a checkbook, i.e., what was your balance when you started, how much money did you deposit, how much did you spend and how much do you have left in the checkbook? Beginning Inventory + Purchases – Ending Inventory = Material Used 34 International Door & Operator Industry™ When inventory is a guess instead of physically taken, two bad things can happen. If inventory is over estimated, profi t is over stated and taxes are paid on a fi ctitious profi t. If inventory is understated and the fi rm shows a profi t, income taxes are understated creating a whole new set of problems. All garage door dealers must understand basic fi nancial concepts and then use these tools. The balance sheet and the income statement are tools that not only tell the dealer the fi nancial health of the company, but also assist in managing the fi rm. Financial statements are not just something given to the owner by the CPA! Understanding gross margin and knowing how to increase gross margin by manipulating sales mix is critical. Knowing the business well enough to develop an expense budget is crucial. Understanding break-even provides a guide for pushing for more or different types of sales. Understanding break-even allows a dealership owner to sleep at night. Knowing the importance of a correct inventory allows the owner/manager to be confi dent that fi nancial statements are correct. Finally, a basic understanding of the fi nancial condition of the fi rm provides the owner with peace and comfort and a better life outside of the business. John E. Zoller and David H. Bowen comprise Zoller Consulting, Inc. of Wooster, Ohio. Zoller Consulting provides consultation of managerial effectiveness and fi nancial performance of construction related businesses. They also offer customized seminars and training sessions. In addition, Zoller Consulting provides acquisition management, including fi nding buyers or sellers, locating funding sources, transaction structuring, and negotiating and organizing the transition to new ownership. Contact Zoller Consulting, Inc. at 330.262.8500 or John@zollerconsultinginc.com.