Last week was why to measure. This week is how to read what you are measuring.

Bobby opens with two houses: same plan, same community, sold for the same price. On paper, at the moment they sold, they were the same job. One closed at 31% gross margin and the other at 17%. On a $500,000 house that is $70,000, and it was not created at the closing table. It was created in a hundred small decisions across six months, and not one of them felt like a $70,000 decision at the time.

From there it is a profit and loss statement in plain English, section by section, with the one test that tells you where a cost belongs: would this cost exist if you had not built that job?

Then the part that is quietly costing people money right now. Markup and margin are not the same number. Add 25% to a $100,000 cost and you sell at $125,000, which is a 20% margin, not 25%. To actually earn 30% you have to mark up almost 43%. A leader who confuses the two is not making an occasional error, they are underpricing every job by the same amount forever, and there is no bad month that makes them go look.

Also in this episode: the six places margin leaks and why not one of them is a market condition, why growing companies are the ones that run out of cash, and break-even, which is your annual overhead divided by your gross margin percentage. Drop five points of margin and a company with $1,200,000 of overhead has to build an extra $800,000 of work to end up exactly where it was.

"A number without a target is trivia. A number with a target is a decision waiting to be made."

This is part two of three. Next week a longtime CFO joins the show.

Chapters:

0:00 Two houses, identical on paper

0:33 Welcome

1:32 You were never taught this

2:26 Reading a profit and loss statement

5:45 The targets: 30, 18 and 12

6:54 Gross margin, where the money is won and lost

8:16 Two houses that look identical

9:25 The six places margin leaks

11:50 Not one of them is the market

12:15 Markup versus margin

13:52 Now do it the right way

15:07 To get 30 you have to mark up 43

16:03 Budget versus actual

17:25 How forecasting actually works

18:15 The monthly review: three columns

18:41 Variance analysis: get to why

20:09 Cash flow, the one that ends companies

20:40 Why growing companies are the ones at risk

21:38 Draws, inventory, receivables, payables

23:28 Break-even, and what a slow month costs

24:40 What five points of margin does to break-even

26:03 Leading versus lagging indicators

28:07 Building your weekly dashboard

29:39 The four questions

32:50 This week's challenge

34:33 Call your CPA and ask

35:49 Close

Learn more: ChoiceConsultingMan.com/Podcast

Bobby's books, Choices and Clarity: ChoiceConsultingMan.com/books

A video version of this episode is on YouTube. Search Choices Create Change.