Links to Financial Success --DickesonJune 2002
Bogey, two o'clock high. If you were a pilot and heard that call from another craft in your flight formation, you'd immediately look up and to your right for an unidentified aircraft.
"Breakeven bogey at $24,500," isn't an air-traffic alert. (I borrowed the term "bogey" to dramatize the number.) It is an alert—a "heads-up" warning—to printing management that predicted cash expenses are, say, $24,500 a week. To just breakeven with cash, you must come up with that much from sales or collections each week. That's the alert—the warning.
That Breakeven Bogey is a reality check. It's critically important. It's a single number in dollars.
If you're thinking of putting in a new press, ask yourself before you sign on: "Will this reduce my Bogey and how much?" If it won't reduce my Bogey, how much will it increase it? If it's going to increase my weekly cash expenses, then what's the source and amount of additional contribution from sales to be produced by the new press? "Show me the money." To increase earnings we must either downsize or increase contribution from additional sales.
Amazingly simple, isn't it? Any decision you make—any action you take—that changes the flow of cash expenses and revenues must either reduce expenses or increase contribution from sales, to be justifiable. We're not talking brain surgery or rocket science here; we're talking common sense—plain and simple horse sense.
As printers, we're in love with technology. We drool over the latest machines at the trade shows. We dream about the automation of a new cutter. We're addicted—hooked by our fantasies. The Bogey must be addiction withdrawal therapy.
It's high time the MIS computer system suppliers to our industry took note: the Logics, CRCs, Hagens, PSIs, Profits, Printcafes, and all the many others. Can you pass the Bogey test? Does your computer system increase earnings? How? Does it reduce weekly expenses? How? If so, demonstrate what downsizing you claim will occur with installation. You'll be judged not by the functionality of your software application, but by how it enables downsizing or increases sales contribution.
It's also high time for printing trade associations, CPAs and consultants to cease and desist with drivel about how to develop opinions called "costs." They, and we, don't know what our costs are. We cannot know. Costs are myths and metaphors that distract us. We can't predict.
Our "cost" constructs are affirmations of faith in a series of assumptions, predictions and allocations. Costs are opinions based on a shaky, dubious construct. Remember: Cash is a fact. Cost is an opinion. Profit is an opinion. We do not "know" our costs—our opinions and our beliefs—but we do know our bank balances—our state of liquidity. We know "expenses." They're facts. They are reality.
In the mid-'80s we began to hear the teachings of Goldratt, Deming, Ohno, Drucker and Shewhart, and realize that it's the rate of deliverable throughput in our production that impacts earnings, not cost notions. If there are, indeed, 45,000 commercial printers in this country, 44,900 of them have tumbled to the job cost nonsense and ignore it. But still they hunger for statistical decision support.
Yes, the Breakeven Bogey is itself an opinion based on predicted cash expenses. But the Bogey doesn't aspire to the sanctity of holy writ and it's not based on costs. We know that the Bogey alert can change from 10 o'clock high to three o'clock low as tiny variables shift and require more or less bucks. We cannot predict change.
Take last year's cash expenses, adjust for predicted changes and divide by 52 for the Weekly Bogey. Keep a rolling 13-week tally of actual cash expenses and compare with a 13-week Bogey total. We don't care if it's interest payments, lease rentals or the phone bill. Cash is cash. When the Bogey is more than 5 percent greater or less than actual, adjust the Bogey up or down to keep it current and relevant.
If you do this, you'll be surprised by the improved quality of your decisions. That's a promise.
Let's hear it loud and clear: SHOW ME THE MONEY!
—Roger V. Dickeson
About the Author
Roger Dickeson is a printing productivity consultant based in Tucson, AZ. He can be reached by e-mail at firstname.lastname@example.org, by fax at (520) 903-2295, or on the Web at http://www.prem-associates.com.