# P1M3

## Calculating Moving Annual Break Even Statistics

This is an article from P1M3 How Profit is Created in the Pillar 1 Your Key Numbers.

## Monitoring Your Break Even Point Each Month

If your business has been losing money or you’re actively in a business turnaround process, I believe it’s important to calculate your break even point with each set of monthly management accounts.

You can do it on a month by month basis but, like a lot of financial statistics, it can go up and down and make it hard to see the trend.

### Using Moving Annual Calculations

One option I like in practice is a calculate moving annual statistic for Break Even Points, partly because it’s normal to think in terms of performance in a year. [continue reading…]

## What If Analysis – Cost Volume Profit

This is an article from P1M3 How Profit is Created in the Pillar 1 Your Key Numbers.

## Understand The Financial Implications Of Your Decisions With What-If Analysis using the Cost Volume Profit Relationships

If you’ve worked your way this this Pillar 1 Module 3 systematically, then with what you know so far, you can start to look at the financial implications of some quite complex decisions.

Previously you’d rely on gut feel to make and worry about the possible consequences.

Now you can start looking at the facts and key assumptions and make a considered judgement, just like senior managers do in big businesses with full accounting and financial management support teams. [continue reading…]

## Reducing Costs

This is an article from P1M3 How Profit is Created in the Pillar 1 Your Key Numbers.

## How To Reduce Your Costs To Improve Profitability

### Look At The Detailed List Of Your Costs

First, if you want to reduce your costs, you need to know what you spend. It’s very hard to think about challenging your cost base when you’re doing it as a way of abstract thinking.

Your accountant or your computer system probably provides a detailed break down so take a look at it and challenge the big numbers first.

Seeing how the level of costs compare can be a big eye-opener. It’s very easy to agree to increase costs – an extra person, a salary increase, a price increase from a supplier or a new discretionary cost. [continue reading…]

This is an article from P1M3 How Profit is Created in the Pillar 1 Your Key Numbers.

## Use The Cost Volume Profit Model To Target Your Ideal Profit

You can use the same Break Even Point logic to target the Profit you want, by treating your profit target as a fixed cost.

Then you can calculate the sales needed to reach your target at your contribution rate assumption. [continue reading…]

## Three Ways To Make More Profit (Accountants)

This is an article from P1M3 How Profit is Created in the Pillar 1 Your Key Numbers.

## How Accountants Tell You How To Increase Profit using The Cost Volume Profit / Break Even Analysis Model

The break even point model (numbers example link) makes it clear there are only three ways to make more profit.

### The first way is you can sell more

We have already seen the impact of that in our numbers example. [continue reading…]

## Calculating The Break Even Point

This is an article from P1M3 How Profit is Created in the Pillar 1 Your Key Numbers.

## How To Calculate The Break Even Point

When I set the example (link), I didn’t need to calculate lots of different numbers to find the break even point.

There is a simple formula provided you know details about the fixed costs and the contribution. [continue reading…]

## Contribution: The Real Income

This is an article from P1M3 How Profit is Created in the Pillar 1 Your Key Numbers.

## Beware Of The Busy Fool’s Syndrome: Learn To Focus On Contribution, Your Real Income

There is a huge danger in business…of focusing on growing the top line of sales or revenue in ways that don’t increase profit.

It’s sometimes called the busy fools syndrome!

You do more and make less money.

You need to move your attention from the top line sales number to your real income – your contribution.

### What is Contribution?

In total Contribution equals Sales minus Variable Costs

## Sales and Costs – How Profit is Created

This is From Pillar 1 Your Key Numbers and Module 3

Let’s try to de-construct your accounts and take your numbers down to the basic drivers of performance. Sales (revenue) and costs are like the two blades in a pair of scissors and the profit is the gap between them. In effect, profit is the small difference between two much bigger numbers.

You can’t work directly on profit because you have to influence sales (revenue) and costs.

## Sales or Revenue

Your sales or revenue equals the volume sold multiplied by the average selling price.

A consultant may sell 100 days per year at £1,000 per day and have total sales of £100,000.

A steel stockholder may sell 2,000 tonnes of steel in a year at £400 per tonne and have total sales of £800,000.

In a multi-product business, total sales equals the cumulative of the quantity sold of every item multiplied by the price. [continue reading…]

## How Profit is Created P1M3

After the last module What Is Profit,   I hope you are clearer about what profit is and that you are determined to make more profit…much more profit from your business.

This module will get into the nuts and bolts of how profit is created.

Why Understanding How Profit Is Created Is So Important

When you understand how profit is made at a fundamental level you will gain an intuitive feel for ideas and whether they will increase your profit or prove to be time-wasting or money-wasting distractions. [continue reading…]