I was teaching my senior level college finance class a few years ago and really discovered the power of quick pay discounts. I was teaching the class the basic formula outlined in the textbook:
We did a couple problems and moved on.
When we were reviewing the material for the test, someone asked me a question on quick pay discounts, and I explained it differently.
I took basic vendor terms of 2%10, net 30 terms. I went through the math (.02 ÷.98) x (360 ÷ 20) and calculated 36.73% - the cost of not taking the discount.
We discussed the math and simplified saying you figure out how many 20 day periods there are in a year (365/20=18.25) and multiply that by 2% = .365 or 36.5%. I used 365 days in a year vs. the text book’s 360. That’s when it hit me. I can make 2% 18.25 times per year - assuming you pay the vendors exactly at 30 days, in this example.
That’s a lot of extra margin - by paying vendors 30 days instead of 10, I make 36.5%. If I borrow the money at 8%, I still make a net 28+%.
Think about it - what’s your gross margin on your sales?
By using purchase discounts effectively, you can double your gross margin – how’s that for adding profit!
Tuesday, November 30, 2010
Tuesday, November 02, 2010
60 Days Left
Trick or Treat – only 60 days left to the end of the year.
It’s hard to believe there is less than 60 days left to the end of the year. Time does go fast.
If you’re like me, you base goals – personal and business, and business plan results on the end of the calendar year. If so, it’s time to kick the goals in high gear with a big push to end the year - and start planning for 2011.
It’s also time to get your team committed to the same.
I did this at October 1st – planned the last 90 days. I pulled out my goals and business plans – took out a calendar – reassessed some targets – and developed a 90 day plan with actionable targets. I have reviewed and updated the plan weekly since. You know what? I was able to get a few priority things back on track.
For me, I had accomplished some of the things I set out to do in 2010, but others had lost priority and slipped out of sight. This re-engagement at 90 days reprioritized everything, and created focus and urgency. My business picked up, and I feel better about myself.
If you haven’t re-assessed your 2010 goals and business plans, do it now – you have 60 days left. It’s late, but you can get a lot done in 60 days. It is amazing to how a daily focus with a short time frame helps get the important stuff done.
It’s hard to believe there is less than 60 days left to the end of the year. Time does go fast.
If you’re like me, you base goals – personal and business, and business plan results on the end of the calendar year. If so, it’s time to kick the goals in high gear with a big push to end the year - and start planning for 2011.
It’s also time to get your team committed to the same.
I did this at October 1st – planned the last 90 days. I pulled out my goals and business plans – took out a calendar – reassessed some targets – and developed a 90 day plan with actionable targets. I have reviewed and updated the plan weekly since. You know what? I was able to get a few priority things back on track.
For me, I had accomplished some of the things I set out to do in 2010, but others had lost priority and slipped out of sight. This re-engagement at 90 days reprioritized everything, and created focus and urgency. My business picked up, and I feel better about myself.
If you haven’t re-assessed your 2010 goals and business plans, do it now – you have 60 days left. It’s late, but you can get a lot done in 60 days. It is amazing to how a daily focus with a short time frame helps get the important stuff done.
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