Links to Financial Success --Dickeson
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.