Business Valuation Principles: Made Easy With How to Increase Value Financially, Operationally, and Strategically by Dale Richards

Author:Dale Richards [Richards, Dale]
Language: eng
Format: azw3
Published: 2016-12-27T05:00:00+00:00

$1 Sales Gain @ 50% Contribution Margin = $0.50 Net Income increase

Many CEOs have asked why a revenue-generating project with a supposed high GM, which should be making money, is actually losing money. It is because the CM is not calculated and considered in the project proposal and is much lower than the GM.

Once the CM is calculated, it is a magic number to determine the break-even for the company, division, project, department or other category.

To change a company’s accounting system and bookkeeping procedures to CM basis takes 3-9 months.

Your accountant may not like this concept very much because this process takes 3-9 months to change the accounting system and requires more bookkeeper work. When the credit card bill comes in, it may be part variable and part fixed. Then more data entries are required. When the salary check goes out, if it is part variable and part fixed, more entries are required. But proper project, product, or division break-even calculations are critical to account for profitability and provides way to improve performance.

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