INSIGHTS & JOY

A business newsletter with Pizzazz!

"We help leaders tackle major issues and become better marketers
using a holistic business approach!"

March 2009
20th Business Anniversary!

April 1st marks the twentieth anniversary for my consulting practice. Particular thanks go to my clients who give me the opportunity to assist them in creating better results. Thanks, also, to my network of friends and IMC colleagues who provide support, inspiration, and referrals. Finally, a million thanks to my wife, Doris, for her patience and support as I begin my twenty-first year in management consulting. I look forward to the future challenges of a very different business environment.

People become motivated to work toward goals when they understand the reasoning behind those goals. A break-even chart provides a good way to graphically depict performance and goals. Good communication encourages commitment and better decision making on a day-to-day basis. This month, I relate how a client and I used marginal income analysis and a break-even chart to examine past results and establish a reasonable budget forecast for 2009. Don't worry, there are no numbers!

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IN THIS ISSUE

Break-even analysis is a terrific tool for management decision making

Marketing Facets - The Market Focused Guide to Company Analysis

Smiles make the day!

$ Million Marketing Tips

Facts about wine...

Break-even analysis is a terrific tool for management decision making

I was again struck by the decision making power of break-even analysis during recent work with a client's management team. Break-even analysis, and marginal income analysis, is far from a new concept. Joel Dean's classic text, Managerial Economics, originally published in 1951, recommended the use of break-even analysis as an aid in management decision making. William F. Christopher, prior to becoming Secretary of State, published a 1974 article in AMA's Management Review entitled, For Today's Profit Planning, You Need Managerial Economics.

The economic approach helps management understand and analyze how a business actually works. It is a helpful tool for organizing reams of financial data into fundamental information for use in measuring performance and predicting the effects of a decision on the firm's bottom line results. Normal accounting and tax-related records measure past performance and values. Managerial economics prompts management to consider future revenues, costs, and expenses when making significant decisions. Using a range of possible future values, managers can build alternate scenarios and more accurately forecast the effects of proposed changes on future profitability.

There are only three factors that determine a company's break even point.

The level of sales revenue or income
The contribution margin dollars and percentage, after all variable costs.
The level of fixed expenses

A manager who keeps a keen eye on these three factors cannot go far wrong. Small changes in a positive direction for costs, prices, and volume make a major difference on the bottom line. Likewise, seemingly small changes in a negative direction devour profits before you can say holy moley! There are only three factors, but there are many factor combinations that a management team might consider.

Here is a quick summary of how my client used break even analysis to improve results and plan for a very chaotic 2009.

After completing the year-end tax reports, we took time to recast the statements and separate out some variable costs that were being shown as fixed overhead expenses. Other variable costs included sales commissions, vehicle fuel expense, shop supplies, freight, disposal fees, etc. It is obvious that such costs will vary with the volume of sales activity, yet they were found listed as fixed overhead expenses on the company's books. The effect was to increase variable cost, lower fixed expense by a like amount, and gain a closer estimate of actual contribution margin. Recasting the company's income statement allowed us to calculate an accurate break-even point and better understand the dynamics of that business.

Looking at a time series of values for each item of cost and expense, we were then able to establish a reasonable forecast of the next year's results at various levels of income. The exercise establishes benchmarks for the various elements of break-even that we will monitor during the year. When results vary from our budget forecast, positive or negative, we will be able to pinpoint the area or areas that need closer attention.

An easy way to develop a marginal income analysis, showing break-even information, is to set it up on an MS Excel spreadsheet, recasting your usual income statement and automatically computing your break-even point, and sales above or below break-even. The open spreadsheet columns can then be used to develop multiple scenarios and quickly determine the probable effects of future decisions...before actually making the commitment! If you are interested, contact me. I can supply a marginal income model that you can adapt to your specific chart of accounts.

A major benefit of using a simplified marginal income analysis is that the firm's business model can be clearly understood by each supervisory level in the company. People become motivated to work toward goals when they understand the reasoning behind the goals. A break even chart provides a good way to graphically depict performance and goals. Good communication encourages commitment and better decision making on a day-to-day basis.

Marketing Facets - The Market-focused Guide to Company Analysis

Should a salesperson's birth date be an important fact for a company acquirer to know? Could extended product warranties create a competitive advantage? How does the company forecast sales? What are the backgrounds and capabilities of the firm's key managers? Answers to these and a vast array of other in-depth questions receive attention in Marketing Facets.

Marketing Facets is a practical resource for those involved in determining the current health of a company and gauging its future prospects. Marketing Facets is a 103-page guidebook, and a supplement to other evaluation procedures and information normally gathered during a thorough due diligence or business valuation process. The workbook takes a holistic approach, assembling facts and management assumptions in key areas to help the analyst form and support conclusions.

Marketing Facets is a valuable resource to private investment fund managers, individual investors, venture capital specialists, investment banks, and valuation specialists. Marketing Facets is also a guide for C-level executives who wish to perform their own company analysis as part of normal business planning, or in advance of efforts to refinance, acquire or divest.

Marketing Facets is available in electronic form via the Internet, on CD/ROM, or in print with a ring binder.
> Electronic in MS Word .doc or Adobe .pdf format via the Internet @ $79.95
> CD/ROM format @ $85.95 including U.S. shipping and handling
> Ring binder version and CD/ROM combo @ $99.95 including U.S. shipping and handling

Consulting is also available. Please contact me for additional information.
Telephone: 972.931.7993 Fax 972.931.0542 rpmorgan@morganmarketingsolutions.com.

Smiles make the day!
Enthusiasm and gratitude

1. A pat on the back, though only a few vertebrae removed from a kick in the pants, is miles ahead in getting better results.

2. The road to failure is paved with indifference.

3. Enthusiasm is faith with a tin can tied to its tail!

4. You won't go far without enthusiasm, but neither will you go far if that's all you have.

5. Years wrinkle the skin, but lack of enthusiasm wrinkles the soul.

6. Patting someone on the back is the best way to get a chip off the person's shoulder!

7. Why not learn to enjoy the little things - there are so many of them?!

8. We have yet to learn to support the things we support with the enthusiasm with which we oppose the things we oppose!

$ Million Marketing Tips

TIP: Everything that people can sense about your products and services affects how they perceive you. Visual perceptions are very powerful, so be sure you always show your best side. A consistent image includes personal appearance, offices, your staff, your paperwork, your vehicles, and your finished product.

TIP: Long-term success hinges on the confidence customers have that you will deal fairly and keep your promises. Strong warranties add confidence and help prospects decide in your favor.

Facts about wine...

1. Colorfully decorated wine glasses may be pretty, but they make it hard to experience and assess wine color. Use clear glasses.

2. Fill each glass no more than one-third full. This allows swirling the wine without spilling and helps release the wine's aroma.

3. A peppery taste is common in Zinfandel and Syrah varietals.

4. The aroma of a wine is an important part of its overall flavor. Swirling the wine will help you release more aroma and a good wine's interesting nuances.

5. Merlot is often a softer cousin of Cabernet Sauvignon, possessing many of the Cab's aroma and flavor components. Merlot is often added to a Cabernet to soften the overall effect without altering the blend too much.

6. If you have read the first five facts, it tells me that you enjoy wine more than most. For a short, very entertaining, and informative Internet wine show, check out www.winelibrarytv.com. I think you will be glad you did so. Let me know what you think of Gary V.

A client speaks: "The experience at Garrett Creek Ranch was an unbelievably positive experience. Every person attending has followed up with enthusiasm and a lot of thanks for the entire weekend. Then, the added benefits of our update with the rest of our team today completed the circle of energy that is flowing through this store today. Thank you so much for sharing just a bit of your knowledge with us all but especially Paul and myself. We appreciate all that you have begun so far and I'm sure the future holds great things for everyone involved."
Dianne Tacker, CFO, The Tacker Company, Inc., Grapevine, TX

P.S. Ninety-five percent of our engagements originate as a referral from helpful people like you!
If you know someone who:

> Wants to develop a more productive marketing program, or

> Needs help building and implementing an effective operational business plan, or
> Wants to exit a business or acquire another company,

I would appreciate the opportunity to discuss the situation with you.

Our ideal client is a business owner or CEO between 30 and 60+ years old. Usually with a financial, engineering, or production background. Who is often impatient, and interested in improving company performance. Comes alive when you ask, "How's business?" He, or she, is practical but also enjoys the finer things in life. So, you may see my ideal client driving a Lexus, BMW, or SUV to Neiman Marcus...and to Sam's Club. Who do you know that fits this description?

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Richard P. Morgan CMC, FIMC
Morgan Marketing Solutions, Inc.
Two Galleria Tower, Suite 1000 Box 8
13455 Noel Road, Dallas, TX 75240-6620

Telephone 972.931.7993 fax 972.931.0542
email rpmorgan@morganmarketingsolutions.com
www.morganmarketingsolutions.com

Author, Marketing Facets - The Market-focused Guide to Company Analysis

"We help leaders tackle major issues and become better marketers using a holistic business approach!"