Many business people make a very big mistake, when they managing by their feeling. Learning to manage by understanding the numbers, qualify you to increase and growth by Gary Shotton #000233
Managing By Numbers
By Gary Shotton
Hello, my name is Gary Shotton, and we are bringing you these teachings as a part of Inspiring Better Business, IBBTalks. Today, I am going to talk about “Managing by Numbers”. More elaborately managing your business by numbers. Managing your jobs by numbers. You see when you are getting started in a business you do a lot of managing by feeling. And feelings are very deceptive. Or can be deceptive. Even as you go along in life and go along in your business you can feel like doing something. I look like this and looks like everything is going fine. My sight is I have got a good feel for it. Or it just looks good. Or I think things are going well.
Well, those are mistakes that you have got to overcome. Yeah, they have a part to play. They should bring a caution or warning if something is not right, but you shouldn’t manage by feeling. Managing by numbers is where you got to go when you are owning and operating a business. Well, lets talk about two kinds of businesses, both the service business and a product you sell. Those are two types of businesses. And then let us talk about the different phases of a business growth like when you are getting started, and when you are getting bigger, and then even when you are quite big as a business. Now let us talk with the subject of managing your business by knowing and operating your numbers when you are providing a product. A product for someone. You are providing cakes to sell. You are providing vegetables in a garden. You are providing pies or restaurant or something like that where you have a product and that you are making it and selling that.
Well, at first you want to experiment. I have always told people you have got to do a lot of experimenting even before you start your business. When you are starting, and you are going around that should be done. That is another subject. You are ready to kind of lock into maybe now starting my business after all lots of experimenting. By the way while you are experimenting you probably need a job someplace else. You need income coming from someplace else to pay your basic bills, but that is another subject. Now you are providing this product, let us say it is a cake. Well, you should measure out the amount of ingredients that it takes to make a batch of cakes. How much flour? How much sugar? How much salt? How much seasoning? Every little thing. Every little piece. And you measure you get a little scale. And you measure it. And you know how much you paid for each one of those things by the pound or by the ounce or whatever measure you want to use. You paid so many dollars per pound or shillings per ounce or whatever and then you must decide and measure how much of each one of those ingredients went in to making that batch of cakes. Then you have got a count and say that batch of cakes makes a hundred biscuits or whatever you are making. Now you have come up with the numbers related to every single cake. Every single piece.
Let us take pizza, something like pizza or in the United States lets take a hamburger. If you are going to sell a hamburger you need to know what the bun costs. You need to know what the meat cost. Of course, that is very important. If you add cheese what does the cheese cost? What is the pickles cost? What is the mustard or ketchup cost? You know there is a very famous hamburger store all around the world called McDonalds. And I will guarantee you they are allowed to put only two pickles, not three or three pickles not four. Note for the person making that hamburger knows not to put an extra pickle because somebody upline knows how much the cost of each pickle is. Then you put your numbers together add it together and that is your cost of goods. Now of course you have your sale price and then we are going to skip way over a bunch of other things that would be your overhead. That is the cost of being in business. But to start with you need to know what your basic cost of goods are related to the actual sale of that item. You probably going to have to be at that point you probably can’t put any more than or forty or fifty percent into that. Sometimes even twenty percent. I mean, let me tell you if you add up all the ingredients of a meal you probably can’t have more than about thirty or forty percent. I don’t know the numbers. Because you have so much other overhead involved before you can make a profit. That is kind of another subject.
Well, lets talk about a service. Well, in services you are usually selling mostly time. Well, you are selling your time and other people’s time. So, you have got to ask yourself even if you are the person that doing all the work is what would be a fair wage for me? What would be at the fair cost of my time? In other words, if I wasn’t here and I needed to hire somebody to do exactly what I am doing what would be that cost? Well, of course then you might have some products related. You might have some service items. If you are a plumber, I mean you might sell some plumbing supplies. When each one of those has a cost that you bought it like a product. It’s a mixture of product and service. And then you need to know what you are selling it for. So, I am not going into detail into each item. I am just telling you; you must know your numbers to run your business.
Well, lets talk about numbers at a higher level. When you make all your sales for the day, then you could count the amount of profit that came in for the day and the amount of expense that came in for the day. Again, this is probably in the category we call cost of goods. It doesn’t include overhead currently. The overhead is there but you need to know what your cost of goods that day was. Your cost of service that day. And then you need to compare and know and monitor that and check on that and be sure you are in line with what’s a good cost on that. Well, then you add the days together and you could look at on a week. But for sure you need to look at it at every month. That month what was my cost of goods when I added up all managed by knowing your numbers, and you added up all the products you bought, all the direct labour that you consumed. You put a number in for you if you were working there and you were doing the labor. You need to put that number in there because unless you are willing to do this as a hobby or this is that a business that’s all you are doing just one person working then that’s a service business. That’s a contractor. It is a business owner but it’s a contractor. If that person is just all they are doing is painting the fence and they are the only one painting the fence they have got a job. That’s what it really is.
So, well at the end of the month though you need to add all of those together, the job costing of each one individual ingredient. Of course, that’s all added together, and you know your numbers for the month of your cost of goods and your revenue that came in and the difference would be what you have your net after cost of goods and now you are being able to manage it. But there’s where you start adding in your overhead. The things that had to happen just to be in business. The things that you need like maybe advertising. Maybe you are in an office, or a building and you would pay rent, or you have utilities, or you have things that are not directly related to that batch size, that job size.
Well, let me go as an example here on myself. I am a pretty good numbers guy, but I am embarrassed to say I took my eye off my numbers in my own business. I was busy doing these reports for you and talking to you and I wasn’t watching my numbers so close. I thought everything was looking good. I looked around everyone was working. But you know what, they weren’t producing at the rate that I thought they could produce, or we are producing. They kind of slacked off. You better believe it in a kind way we use the term bend our culture back to line it up, but don’t break everybody’s spirit. We are getting our numbers back in line. So, I can be profitable. Real profitable. So, that I can do this and more. Well, I hope this is helpful to you. I hope you enjoy listening to inspiring better business talks. We thank you.
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