Daily Leadership Thought #59 – Get the Math Right

November 23, 2010

UMSL Triton Store - Business Math Formulas Quick Reference Guide

It’s amazing how many people can’t do basic math when it comes to their business or their lives.  Revenues minus expenses equals profit.   Profit only becomes cash once it is collected.  Cash inflows must exceed outflows or there needs to be a strategy in place to cover the shortfall and this should only ever be a short term problem (120 days or less).  Debt is advisable when it is used for investment purposes and the long term cost of capitals is less than the return on investment.   Debt is a never a good strategy to cover up for bad management decisions or operational flaws.  Minimize overhead expenses and ensure adequate investment in revenue generating positions (e.g., sales and marketing).  Don’t pay yourself more than the business can bear.  And, keep enough capital in the business so that you can handle short term emergencies or take advantage of unforeseen opportunities.   Hope is never a good strategy when it comes to your business or personal finances.