A few years ago we started focusing on our break-even number. We identified that number as the amount of new/new revenue we would need on a daily basis to hit our growth goal. We anticipated our residual income would be flat, but factored in the loss of any large accounts that occurred on a weekly basis. We tracked this daily and every person in the company knew if we were hitting goal.
So how do you determine your break-even number? First, analyze your revenues. Are you a $1.2 million revenue firm? Excellent: your monthly number is $100,000, your weekly is $25,000, and your daily number is $5,000. Tracking your daily orders or transactions using most software solutions is an easy task these days. Set up a procedure that at 3:30 p.m. each day sends the “number” to everybody in the company to know how your company is doing.
That's step one, but we took it one step further. Because our revenues are flat from year to year, we wanted to focus on a growth goal of 12 percent. We took our annual revenue times a 1.12 factor and then broke down our 12 percent growth over a 12-month period. I would track the financials on a monthly basis to ensure that we were on track in a “big picture” way, but I empowered one young man in our company to tally our daily sales and report “our number.”
People want to be on a winning team. Many business owners hide the financials from everyone for fear that they might want a raise or, God forbid, know how much the owner is making. I've always been very open with our financials with our staff. When we're doing well, they know it; when things are getting tight, we talk about it.
Since 1996, we have been a small, profitable company with revenues starting at $250,000 and today hover around $2 million. I think one of our keys to slow and steady growth has been keeping our staff educated about our financial status.
There is a great book by Jack Stack about a concept called “gainsharing” (“A Stake in the Outcome: Building a Culture of Ownership for the Long-Term Success of Your Business”).
It's an amazing story with a happy ending that has turned into a national movement.
The basic concept is that if you need certain revenue to manage your company and earn a profit of 10 percent, you can determine what that number is. Every dollar generated over that target should be shared with all employees. You can play with the percentage of company take vs. employee take, but ultimately, if you make a dollar more than you need, Stack recommends pushing the money back to the employees.
I have a friend that ran this complete system in his company, the employees became empowered, he opened up another location in Holland (the country, not the city) and they are doing some amazing things.
Business is a game. Figure out your breakeven number, let everyone know what it is and start having some fun!
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