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9 May  2010 ~

Recently, I was reading some of John Barbar’s writings on business improvement and in one, he offered some powerful insight for emerging from these challenging economic times.  He has been kind enough to share it again via a guest post here on our blog.

Guest Post By John Barbar

When are we going to exit these economic times?  Will it be in 2011, 2012 or even later?  No one really knows so let’s decide that it’s over NOW!

You might ask, “Has John lost his mind?” Actually, my approach is not to participate in the recession, even though I have been impacted.  I chose to start a business after evaluating my skills, the market and possibilities.

Prepare for the recovery by looking for opportunities to improve your company.

Focus on these three things: 

Improve Gross Margin 

Gross margin reflects profit made directly on product sales or performance of work.  You can have great return on your bottom line by increasing gross margins.  First, calculate gross profit (net sales – cost of sales); and then calculate the ratio by dividing the gross profit by the net sales.

The Pareto Principle states that 20% of our effort gets 80% of our results.  This applies to our employees, customers, time and costs.  Focus on improving the 20%, direct labor (labor producing the product) and direct materials; the results can be dramatic. Create efficiencies in production or operations to reduce costs without hurting quality.

Ask: 1) How is the gross margin monitored? 2) Are the projects taking longer to complete? 3) Is my vendor pricing competitive?  4) Have I procrastinated on efficiencies I can implement now?

Understand Your Breakeven

Breakeven is the relationship between sales, gross profit, and fixed overhead.  It is the sales needed to cover all your costs. This is calculated by dividing the fixed expenses by the gross margin.  Know this sales number on a daily basis to predict your monthly results, and manage the sales team.

Fixed expenses have significant impact on sales required to breakeven.  I’ve helped three clients in the past 120 days reduce their fixed expenses.  This lowers the sales required to breakeven; it also creates less stress on the operation.

Ask: 1) What fixed expenses can be eliminated or reduced? 2) What do we need to sell daily to breakeven? 3) How many sales calls must be made to generate required sales?

Create a Weekly Cash Forecast

Cash is the life blood of any company.  Cash is required for fueling growth or enduring difficulties.  A simple format when creating a forecast is: beginning cash balance, add the projected cash expected to collect less cash required to pay out.  Keys to use to monitor the forecast: be realistic with time frames, update weekly with actual activity (this report should mirror your check book), and focus on ways to improve your collection process.  This should be a six month forecast.

Ask: 1) Will be vendors provide additional terms? 2) Am I billing my customers timely? 3)  Are the projections realistic?

Fundamental principles for creating a stable company are: focus on improving gross margin, understand breakeven, and monitor cash.


This is guest post from the Barbar Financial Minute:   A weekly business strategy brief for entrepreneurs and business owners.  For more information visit:; email:; or call John Barbar:  561.347.8586


About the CFO Strategist
Chris is very proud to add Best Selling author to his resume.  The book he co-authored, 42 Rules for 24 Hour Success on LinkedIn reached best seller status on Amazon, hitting a high of #68 across all of Amazon! Recently the book was included in the “Top 100 Best Social Media Books, Ever” list at #77

To purchase the book, please go to or to Amazon.

To learn more about how to effectively use LinkedIn – we offer a free eCourse at

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