Income, Expenses & Generating Profit
What I'd like to start with is a really, really great site that is going to answer a question that I have been asked often on throughout, which is if I need more specific help working. I turn and this is the site that I would like you to. I'd like to suggest that you go to it's called into its pro adviser side pro adviser dot into it dot com. You can see in the, uh, quarter there that you can put in your zip code and even a distance from your zip code, and you can come up with people who have passed a certification through QuickBooks as experts. And I can tell you, after looking at that designation myself, it is a lot of work to get the QuickBooks Pro Advisor designation. So what I'd like to do is it's just click in my zip code, and I'm gonna say I'm willing to see somebody who's within five miles of where I live shot out to Kirkwood, Missouri, the 631 to 2. So they give you a lot of great stuff here. Um, among other things, you'll see that this has advanced at the top Not only is ther...
e one exam to become a QuickBooks pro adviser, there are actually multiple levels you can take. So they tell you they have a rating down here. They tell you what level they're at in terms of passing the exams, not only with this advanced sort of flag at the top, but also over here. They give you the certifications. This person, for example, has been QuickBooks certified for over 10 years. I don't know them. They handle QuickBooks Online Enterprise is the most sort of souped up version of QuickBooks. So I mentioned throughout the course that there are businesses that are running 10 $15 million on sale businesses on QuickBooks. That would be the QuickBooks enterprise. Software also tells you how far they are from your house, phone and email, and you're given multiple, um, suggestions. Here. This is within five miles of my house, and I've got to for you know, there's probably plus people listed here, and there's three more pages. So again, my reason for pulling this up is to let you guys have a resource. If you want to talk to somebody who's a professional on QuickBooks, so it's a great resource. I'm gonna now switch over to the slide for the first segment, which is called income expenses and generating a profit. And I wasn't gonna put this question up initially, but I think I will to kind of get us warmed up and get a starting to think about this topic. We've covered it a couple of times in different formats. Have you ever turned away business of wife? So I'll ask the folks that are here. Have you ever turned away business? And why anyone? Yeah, Jackie o immediately nodded her head have turned away business most of time. I've turned it away because I either didn't think it was the right fit. Whatever their needs were. I didn't think that it was my expertise or I just didn't think that working with the client would be a positive experience for either one of us. Perfect. Yeah, not a fit. Maybe the person's difficult. OK, maybe their deadline is too tight, which is one I haven't mentioned you in my profession. Most people who come to me for coaching or training on accounting our MBA students who are in crisis because they have a paper due Sunday, or they have an exam next Wednesday and they're struggling and it's an emergency. It's not always possible for me to schedule time for them. Number one or enough time for them. Number two. So maybe there's a time deadline that you can't meet. The hardest thing for me in turning away business was telling people that I didn't have time because I used to move heaven and earth to get him the time. And for personal reasons. I don't do that anymore. I'll make as much accommodations are reasonably can. But there are periods of time where I don't take on work, and I say, No, that was really hard for me to do so not a fit. You don't do what they you don't have an expertise and what they want Clients too difficult Timeframe is too short. Okay, that comment gets us starting to think about income, expenses and generating a profit, and I've said it several times, and it bears repeating successful business owners asked for fair compensation dot, dot, dot in the end of that, that we couldn't fit on. This slide is not only do they asked for fair compensation, but they turn business away in certain circumstances. What I'm going to go through is the income statement Formula one More time. How profitable should my business be? So that's the compared to what type of thing compared to what is my price high enough? I have a very good friend of mine. C P A. Very successful. In fact, if I would have kept scrolling through the QuickBooks experts, I would have come across my friend. And one time I asked my friend Will Joe, how do you figure out what the charge people Without hesitation, he said, I charge people is much as I can possibly get away with. And then he laughed, and he said, Being serious, I really provide and he does a very high end expertise. I'm very responsive. I've been in this business forever. I push the envelope on what I charge and he does. I know he does, because I have referred people to him. I had a c p. A practice. It wasn't full time, it was part time and I shut it down and I sold those clients to him and I started getting calls from people who used to deal with me, saying Wow. Joe had to me the invoice for my tax return and about took my breath away and I said, Well, you remember that I told you that he charges more than I do, but it was fair. Don't get me wrong. It was fair compensation, and he had no hesitation. Now, I'll also bring up another comment on my friend Joe that relates to operating cash flow and had a better collect cash because it's a good point. And since we're talking about Joanne, Mayes will mention it. His business was about 50% doing tax returns. He always handed the person the invoice when he handed them the tax return. Because once he does the tax return and if the only business he did with that person was their tax return, when we say we're going to see him again, when was the next time he was going to see him? I should say next tax season. So there were situations where people would get the tax return mail to them and they wouldn't send them. They wouldn't pay him for months. Why? Because they don't need him again for a whole nother year. So he trained his staff that I want to meet with clients, Not only because I want to explain the return which presents prevents problems later. That's coaching your clients. I also want to hand him the envoy so they'll pay me one sitting there because otherwise they don't need me for a whole another year. Okay? Food for thought. One of the other things I'm going to do today and I'm excited about this is I put the table of contents for my two of my books on this IPad. And what I'm going to be able to do is we roll through, is when we get to certain topics, I'm gonna go to the table of contents from the books and pull some of that content and use it in class. I wasn't sure if I was gonna be able to get to it, but I am. And I'm kind of excited about. So there'll be some added stuff from the books. Not that I'm trying to sell you books. I just have the contact. Okay. We've talked about this to rule until we're blue in the face, the income statement formula. So I'm hoping by now that when I go into QuickBooks Later, you could envision we've got that reports page. And at the bottom we've got profit and loss and the balance sheet report under the Reports menu. And so profit and loss reported this right revenue or sales. We use the two terms interchangeably. Less expenses equals net income. Now I could have put on the slide profit. Remember that that income and profit or the same thing for this course revenue and sales are the same thing for this course. So the next question is how probable should be compared to what? Okay, first the formula. Profit margin. Now let's forget about the math for a minute. Forget about that and go to the go to number three of the bottle before I do the math, it says For every dollar I sell iron 15 cent profit for creative people who are not Matthey people. The way to remember profit margin Maybe number for every dollar I sell iron a 15 cent profit. Um, now let's talk about how the math works to get you to number three. Let's look at number two. We take profit numerator of a fraction and divided by sales. So for example, on the board. If you sell a package of photos for $300 have a $45 profit, $45 profit divided by 300 sales, get you 15% profit. But I think for this audience, most of you are more comfortable with number three. Okay, some of that may be stuff we've gone over before, but now this is new and we're going into a new formula and in fact, the formula that I'm going to go over the break, even formula heading that you see there is on the bonus material. And it's a great thing that you can use. And it's in yellow on the right hand side of the chart here and play around with, and we're gonna do some playing around with it here in a minute. First of all, is my price high enough? The title of the slide specifically does Mike Price cover all my costs and generate a reasonable profit whatever reasonable means to you. Okay, break even formula. Does the price cover all my costs? That's the first step. There's an example that I use in one of the books where I say, let's say you're going to a your considering going to a convention. I try to write a little neater today and slower, and you're gonna have a booth at a convention. And the booth is going to cost you $ and that's a fixed cost. It's not gonna change. You got to write a check for $2000. The reason you're going to the convention is to sell a piece of software. So you're gonna have you're gonna have a desk, a booth with the software on the desk. And let's say the software costs $30 a unit. Now, a big thing in accounting that I preach is label numbers label numbers. Here's what I mean, that is dollars, not units. Okay, later on, I'm gonna do something with the number of units you sell. That number is a dollar is dollars. It is a dollar sign by that may seem, Why does that matter when you start doing a formula that has both numbers, dollar amounts, and then units a product, you've got a label, the numbers or you're going to get confused. That is a variable cost, meaning that if you don't sell any of the software units. What do you think you're going to do? You're gonna pack them up and take him home. Okay, so if you sell zero units, you just pack him up, take him home their inventory, and you're going to sell them to somebody else later. This is fixed. We also call it in accounting a sunk cost. S u N K. Which reminds me. I'll tell you a analogy and a story. So here's my analogy. If you're running to catch a flight which, by the way, member O. J. Simpson run through the airport. I did that in O Hare. I ran about 400 yards. I felt pretty good. Get in here. We've had lousy rather. And I'm waiting in ST Louis and my points too late. And I've got to go to Chicago and catch a flight to San Francisco. Flights delayed. I call, uh, the American and I said if I didn't have time to catch, they delayed it. 19 minutes. I think you'll be all right. Land. I have 19 minutes before the plane takes off. So I did My o. J. Simpson aren't ran through the airport. If you're running to catch a plane. Think about all the costs that the airline has incurred already for that flight. They've already incurred the fuel in the plane, the insurance salary and benefits for the crew. They've already played for the gate. They've already paid everything right. So all the cost to the airline before that plane takes off or sunk or fixed costs sunk meeting you can't change them. So if I run up to the gate and buy a ticket at the last minute, what are the additional cost of the airline? Incurs a bag of peanuts and a soda. There is virtually no additional cost if I run up and buy a ticket for the plane because all the costs are sunk unchangeable, unchangeable. So they live everybody to run up to the plane at the last minute. I had a whole row of my way to San Francisco, was great. I wanted to lie down on the three CS and take a nap, but they would let me do it. So had somebody run on the plane and taking the seats in my row. That's just gravy. That's just extra revenue with virtually no cost. See what I mean? But the airline analogy is a good one because all of your money is already spent. So, for example, give me another one. Chris, if Christine is going to go out, this is This is a big one that I'm gonna cover later when I do job costing. If Machine is set up to do a film documentary in Chicago and she's incurred the cost to get their bringing the equipment hiring staff the whole nine yards in Chicago If there's another film projects she could do in Chicago, can you see that? That could be just a huge win. Why she's already there, Right? So much of the cost of doing the second project have already been incurred for the first project. How many of you have seen a landscaping or a tree company working in your neighborhood? And they knock on your door, right? Hey, we're in the neighborhood. Well, come do whatever you want. Why did they do that? They're already there. So the extra revenue they get from doing your yard is just gravy. The truck's air there they weren't incurred. The mileage expense. They've got the crew there. Why not go around and look for more business okay. That's how we use fixed cost to our biggest advantage. So if you are doing work for a client and you, like Christine, have to physically go there and take stuff there, why not try to find other business? When I go on the road for this financial company And I told you I fly in and fly out, we try to find other people that they can send me to and go see while I'm there. Sometimes it works out. Sometimes it doesn't. Why they've already paid for the flight For me to go there in the hotel and the rental car, why not? Have can go see some other people leveraging, which is a term I'm going to use later. Your fixed costs so makes sense back to our convention. You're gonna buy a booth. It's gonna cost you $2000 a fixed cost. You're gonna sell software? $30 a unit. Oh, you're gonna your costs over the software. Sorry. That's a cost. It's $30 a unit. You're going to sell the item for $50 a unit. First question break even formal. Its on the board. How much? Here's what that means. And you're going to see it on a slide in minute. How much do I have to sell? So I at least cover all my costs? Or in other words? And it says on the ride in yellow, how much do I have to sell? So my profit is zero. In other words, 33rd option. How much do I used to sell? So I don't lose any money? Step one, Don't lose money. One other thing on this slide variable costs change with your sales volume. The Mawr units of software I sell the MAWR costs I incur for the software. If I don't sell any, I don't have any costs. Next light talks about fixed costs. Fixed costs do not change with your sales volume. I've got to pay for the booth, regardless. Example fixed costs the least that I've talked about repeatedly. The cost of the least will not change with the sales volume. Your stocked with Lise Now big point, Big point. Look at variable costs by unit Onley. Look at fixed costs in total dollars. Don't look at fixed costs by unit. I'm not gonna go into why right now. Consider this in total dollars on Lee, not per unit. I may or may not get to the reason in the course. It's not really Jermaine. It's not really critical. Look. A total dollars and fixed costs on Lee. So on the board consider fixed costs of the studio lease in $2000 a month. Don't look at it per unit sold. No, no, no, no Total dollars. That's it. Okay. Important point. Next slide Is the formula sales minus variable costs. Might has fixed costs. We set that equal to zero. Here comes some math. Unfortunately, a little bit of algebra Assume that one unit is a photo for image photography costs $30 per photo. You sell a photo selling for $50. A fixed costs 2000. This math is the same math, but a different example than what I have on the white board. Every with me. Okay, here comes the math we're gonna solve for X because what we're trying to find out is how many units do I have to sell to break even? Okay. 30 minus fifties. 20 acts on the right hand side of the equal sign. I add 2000 each side, so I get rid of 2000 and left, it moves to the right. At this point, I divide both sides by 20 X. I find out I have to sell 100 units. Now, what have I just figured out? In other words, image must sell 100 units to cover all the costs, whether they're fixed or variable. So at a minimum, I have to sell 100 units. Let me do the one of the board that has the same numbers, just in case you didn't catch that steps that I explained verbally, I'm gonna do him on the board. Okay, so 50 minus 30 gets us to 20 acts again. Dollar sign. It's dollars. Don't forget the dollar sign. Very important. Okay, At 2000 of both sides, 20 x equals 2000. I know, I know some of you were way ahead, but I just for the benefit of the audience, I'm gonna do this. That's where I am now. There'll be a quiz later for the studio. Everybody's working on this. There's there's a quiz at the end of the course. Were you where you didn't you guys know about the quiz? There's a quiz. How is Ken boy, you know, he was good, but he's really kind of a jerk of the because he gave us a quiz. Really? A quiz. Okay, X equals 100. Now you'll note that this is now, units, it's not dollars. It's units because you're solving for X and X over there is units. What did I just figure out? I got to sell 100 units. So what I have in one of my books is the guy's not going to get on the plane and go to the convention. If he doesn't think he can sell mawr than 100 units because if he doesn't sell more than 100 units, you will make any money. These are the kinds of conversations I think those of you in the audience have intuitively in your head, but you probably don't use the numbers. What I mean by that is you're probably think Christine's probably thinking Well, you know, I'm willing to go out of town and take this equipment and do this shoot. But how much revenue do I have to generate for that? To make sense, I think you're doing it in your head. You're probably just not using the numbers. I think we'll do this in our head. Okay, that Okay, that's math.