All Financial Models Require Assumptions All models require assumptions. The problem is, actual results nearly always deviate from these assumptions. The question is, by how much? Most modeling uses the guidelines of ±10% as an acceptable variance threshold. Variances within ±5% are considered a top of the line model. We have actionable data as to how we can make improvements in the business thanks to Unit Economics and Cost-Volume-Profit (CVP) analysis already covered in previous content....
7 days ago • 5 min read
Standard Financial Statements Are Useless for Decision Making What worked in the past is not guaranteed to work in the future. Everything is in constant flux. Selling prices for specific products change. New products are added or dropped. Production costs change as raw materials and conversion costs change. Purchase order volumes change. Your customer base changes over time. Competitors comes and go. You can run your operations exactly as you have in the past, but experience dramatically...
14 days ago • 6 min read
The Problem With Standardized Financial Statements Staring at generic Profit & Loss (P&L) Statement formats will not provide the detail required to improve the business. This format lacks key data points, such as sales volume, which is required to calculate unit economics. This format shows the profit or loss associated with a single unit of product, whether as an average across all products sold during that period, a specific product, or even an average for a single customer. Without this...
21 days ago • 5 min read
The Key To Long Term Profits Creating competitive advantages is the only way to increase long term profits and cash flow. By creating competitive advantages, manufacturers have flexibility and options. For example, a cost advantage allows the business to manufacture the same products as competitors, but at lower cost per unit. This allows them to be price competitive, or even undercut competitor pricing to attract higher sales volume while maintaining or increasing total profits. Or the...
29 days ago • 6 min read
The Finance Advantage: From Numbers to Strategic Action Getting Actionable Financial Data Like most manufacturers, you get your basic monthly financial reports from your bookkeeper, accountant, or an outsourced accounting provider. Most bookkeepers and accountants provide you with generic financial statements. These are built specifically for external decision makers such as creditors and investors. They are not built for internal decision makers, such as yourself and managers within the...
about 1 month ago • 9 min read
The Purpose of Productive Powers A Once Prosperous County Capital Region Think of how a typical county capital region looked 50 years ago. Main Street businesses are busy. Local shops are thriving. Several manufacturing plants provide the town with great employment opportunities. The town's culture and community spirit is on full display. Let's contrast that with today's reality. Many of these county capital regions have been hallowed out. Manufacturing plants have been shut down. Empty...
about 1 month ago • 5 min read