Basic Business Facts For Profit Seeking Firms
- Want to know the cost of goods sold needs and the selling price so the profit margin can be known.
- Want to know the overhead, fringe, and benefits, non-recoverable sunk costs that are deducted from revenue.
- Want to know obligatory expenditures for future costs for a variety of reasons, so
- We will be able to stay in business at our current run rate (income – expenditures)?
- We will have enough cash on hand in the future, or will we have arrange financing or assure sufficient revenue can cover expenses?
- We will have insight if expenses are going change, stay the same, go down?
- For all profit seeking business, the balance sheet is king
- Top line revenue from products or services
- Middle expenses needed to achieve top line
- Bottom line revenue – expenses for gross profit
- Net Net (EBITA)
- Knowing this before the fact is called governance of other peoples money
- To answer the Top Line and Middle Lines so we can know something about the Bottom Line and the break even data we need to estimate many things in the business before they occur.
So how can business decisions be made in the absence of these estimates?
No one seems to know, and those conjecturing to know how it can be done, haven’t provided a single suggestion as to how to that yet. Until those appear, these basic rules of how business work are still in place.