Sign & Digital Graphics

March '20

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S D G M A G . C O M • M A R C H 2 0 2 0 • 7 3 Is this the time expand? Sometimes, uncertain economic conditions present ideal opportunities. A Time to Grow, A Time to Move Vince DiCecco is a business training and development consultant and owner of the Acworth, Georgia-based busi- ness, Your Personal Business Trainer, Inc. He has been sculpting his sales, marketing and training techniques since 1979, and he has shared innovative and practi- cal ideas on business management excellence for two Fortune 200 companies, the U.S. Coast Guard, and in seminars at many sign and digital graphics trade shows. Since 2003, YPBT has been serving small- to mid-sized companies in their efforts to strive for sustained growth and market dominance. Contact him via email at or visit his company website, T here are hundreds of books about starting or buying a business. Most address the issues surrounding choosing the right operating entity, raising capital, finding and dealing with lawyers, accountants and insurance agents, and choosing vendors, contractors and employees. All are topics worthy of consideration by a new business owner. But what about the difficult decisions facing the seasoned, battle-tested business owner? Growth and expansion require careful research and planning. You cannot simply wake up one day and decide to move into a larger commercial space, venture into a new market, or take on a new product line outright. Not as much has been written about the appropriate ques- tions a business owner ought to ponder when it's time to grow or move. The decision to extend the scope of your business must be a result of thoughtful analysis, including the financial, logistical, and even your emotional readiness to shake things up. What follows is just a primer on the subject of taking your business to the next level. Ready? Let's go... Timing is everything The rule of thumb about when to make a move is that you should only expand when there are growth opportunities that can benefit your business and give you an immediate—typi- cally, less than one year—return on investment. Think of it as planting a tree that already bears low-hanging fruit. There may be an untapped market niche on which you want to capital- ize; or, perhaps, a new location that will deliver significantly greater traffic at your grand opening. In any case, whatever change you initiate, have a well-developed plan with plenty of contingencies should events not pan out as expected. And certainly understand that expanding operations does not always guarantee success. You may be doing more volume by moving to a larger facility or adding a second location, but with the additional overhead, you may not make any more money. You may ask yourself, "Why then should I even undertake the challenge?" The only point being made here is there are no guarantees, but a lackluster result is certain if you don't know how much more you will need to sell in order to cover your investment. Accordingly, allow me to introduce the break-even formula: If you refer to the company's most recent Consolidated Income Statement (aka profit-and-loss ( P&L) statement), you should be able to locate or calculate your gross margin percent- age. It's usually the near the top of the statement on the line labeled Gross Profit. If, on your P&L statement, there isn't a separate column with the heading Percent of Sales, you may have to take that dollar amount and divide it by the top line, Total Income or Gross Sales Revenue. For example, if the company's gross sales revenues are $1,200,000 and the Cost of Goods Sold is $500,000, then the Gross Profit is $700,000 and the Gross Margin Percentage is 58.3 percent or 0.583 ($700,000 / $1,200,000). Look down the rest of the P&L statement, and classify each line item as either Fixed Expenses or Variable Expenses. The easiest way to do this is to go line-by-line and ask yourself, "Would the company be required to pay for this regardless of how much product or services it sold?" If the answer is "yes," then that total gets added to the Fixed Expenses. If the answer is "no," that amount is determined to be a Variable Expense. For instance, if the company does not have an advertising firm on retainer or on a fixed contract, and it decides to promote and market itself as the need arises, then the total spent on advertising would be classified as variable expense. Conversely, the line item labeled Payroll Expenses—that is, compensation and taxes for salaried employees excluding production labor—usu- ally becomes part of the Fixed Expenses tally. Commissions and bonuses paid to sales people, being determined by how much was sold, would be considered a variable expense. Make it Your Business B Y V I N C E D I C E C C O Fixed expenses (overhead) Gross-margin percentage – Variable-expense percentage Break-Even Volume =

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