By: David Freedman, CEO
We live in an age of specialization. As you work your way through school you develop a major, maybe marketing or computer science or accounting and then you’re on your way to becoming a specialist. Once you join the work force you are pushed to further specialize; the accounting major goes in to tax, or financial planning, general accounting, budgeting or a host of other specialized areas that require greater in depth knowledge of one specific area. Marketers go into online advertising, website design, TV ads, etc. While having people with this level of specialized knowledge is important in today’s complex business environment, I believe it is equally important for everyone in an organization to understand the big picture. Why do you need to understand the big picture? That is a really good question.
The big picture encompasses all aspects of a business. It includes costs; things like aviation fuel, aircraft repair, computer and camera expenses, software, insurance, rent, and of course people costs. Those are things that everyone can conceptualize and understand but there are literally hundreds of other items that affect cost that you might not think about when you consider what drives your company. Some examples include; employee training, attendance at trade shows, the cost of government filings, aircraft maintenance manuals, etc. Any one of these items can cost thousands of dollars and could be the difference between making money or going out of business.
Cost is just one aspect of the big picture. Another critical element is revenue. Our business earns revenue from three different business lines; Imaging, CLI reports, and Aircraft Maintenance. In order to figure out what to charge our customers, we need to calculate our costs for a project and add enough to cover the big picture in related costs so that the project is profitable. Pricing for the imaging business includes things like; estimated flight times, computer related costs, and people related processing costs. If we estimate that a project will take 20 hours of flight time but issues around weather and reflights actually drive that time to 30 hours we could end up losing money on that project. Another element of pricing is what competitors charge. In many cases, market price also drives pricing. If the average aircraft repair shop charges $80.00 per hour for labor, it is hard to attract customers if you are charging $140.00 per hour. How do you know if what you are charging is enough to make a profit and at the same time bring enough revenue in to support the business? That is another really good question.
The answer to that question is The Bottom Line. When looking at a financial statement, all of the components of the business are reflected in the revenue, and costs show up in the bottom line. If you continually lose money the business will not survive. If you charge too much to be competitive your revenue will erode and the business will have to cut back. Having the right mix of profitability is critical to the long term health of the business and also to having adequate funds to invest in the future of the business. Without investments in technology, business development and people, there can be no growth. That is why it is critical for all employees to understand the big picture and to do that they need to understand the bottom line.
So when I hear someone say all you care about is the Bottom Line, I am happy because they understand that I care about the entire business and the people that work there. I am focused on the growth and survival of the business, the protection of their jobs, and the creation of new ones.