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Daily Leadership Thought #59 – Get the Math Right

November 23, 2010

Daily Leadership Thought #59 – Get the Math Right

Table of Contents

It’s incredible how many people can’t do (or ignore) basic math when it comes to their business (or their personal lives):

  • Revenues minus expenses equal profit, and a business can’t survive in the long term without profit unless it has a subsidy in place.
  • You can’t sell something for less than it costs to make/deliver it.
  • Not all products and services are created equal. Make sure your internal investments match the external market realities.
  • Cash inflows must exceed outflows, or a strategy needs to be in place to cover the shortfall (and this issue should only ever be a short-term problem—120 days or less).
  • The status of your work backlog and sales pipeline is a good indicator of your future.
  • If your Days in Accounts Receivable exceed your Days in Accounts Payable, you are creating a cash flow problem.
  • Your cost of capital should be less than the return on your investment opportunity.
  • Debt is never a good strategy to cover up bad management decisions or business model flaws.
  • Minimize overhead expenses relative to revenue results.
  • Ensure adequate investment in revenue-generating positions (e.g., sales and marketing) to leverage opportunities.
  • Your level of productivity should always exceed the rate of inflation.
  • Don’t pay yourself more than the business can afford.
  • Keep enough capital in the business so that you can handle short-term emergencies and/or take advantage of unforeseen opportunities.
  • The compound value of interest over time is an amazing thing.
  • Businesses and families should have an operating budget and live within their means.
  • Have money set aside for emergencies because they do happen.
  • If you don’t invest and save for your future, you may not have enough money to live on when needed.

 

Hope is never a good strategy when it comes to your business or personal finances.

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