People With Fancy MBA’s…

Metadata

• Author: @brianbeers on Twitter
• Full Title: People With Fancy MBA’s…
• Category: #tweets
• URL: https://twitter.com/brianbeers/status/1649383095609483264

Highlights

• People with fancy MBA’s like to create complicated financial models As a simpleton I break down a P&L into 4 numbers This model works no matter the size of the business (View Tweet)
  • Note: Thread
• Every business has 4 key numbers:
  1. Sales - cash that comes into the business
  2. Contribution - cash left over after paying all variable expenses
  3. Fixed Expenses - stable recurring expenses
  4. Net Profit - profit left after paying all expenses Let’s dive into each one: (View Tweet)
• 1/ Sales - my dad taught me “sales fixes everything” There’s a lot of truth to that statement Sales is your lifeblood. You can’t save your way to wealth. You need to blow up sales through more marketing, locations, services, higher prices & better customer service (View Tweet)
• 2/ Contribution - cash left over after paying all variable expenses Variable expenses are directly tied to your sales When sales go up, variable expenses go up When sales go down, variable expenses go down (View Tweet)
• For franchises there 5 major variable expenses: 1/ COGS - cost of goods sold 2/ Royalty - for franchises 3/ Advertising - you must advertise to drive leads 4/ Direct Payroll - cost of performing the service 5/ Credit Card Fees - cost per transaction (View Tweet)
• Contribution is the amount left over after paying all the variable expenses (View Tweet)
• Let’s say we’ve got 65% of variable expenses, leaving us a 35% contribution margin That 35% margin is sticky no matter the sales volume. (View Tweet)
• 3/ Fixed Expenses All of the expenses that are fixed every month. They have minimal correlation to sales volume
  • Rent & Utilities
  • Debt Payments
  • Fixed Payroll (Managers, Admin, etc)
  • Insurance
  • Technology
  • Other Misc Expenses Picture your fixed expenses as a bucket (View Tweet)
• The contribution profit pours into the fixed costs bucket The first $5k of contribution goes to pay your rent, $2k for the debt payment, $10k for payroll, $3k for insurance, technology & the remaining expenses (View Tweet)
• No “net profit” exists until you fill up the bucket up Once filled all the incremental contribution profit overflows & becomes net profit (View Tweet)
• At the end of every month the bucket empties and you start all over again (View Tweet)
• Small increases in sales lead to much larger increases in your net profit A 20% increase in sales leads to a 47% increase in net profit A 50% increase in sales leads to a 117% increase in net profit (View Tweet)
• To get started take your P&L and categorize all expenses as either
  1. Variable - it goes up and down with sales. COGS, payroll, cc fees, advertising & royalties (if you’re a franchisee).
  2. Fixed - everything else that doesn’t go up & down with sales (View Tweet)
• Play around with your numbers See what happens when:
  1. You increase sales
  2. Increase contribution margin (by lowing COGS/Payroll %)
  3. Reduce fixed expenses Some real magic happens when you can do all 3 (View Tweet)
• Follow me @brianbeers If you enjoyed this thread you’d probably enjoy my newsletter where I help people create a fortune through owning franchises https://t.co/s2diDGCwJs (View Tweet)