balance sheet

Balanced View of the Balance Sheet

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Like any piece of business information, the balance sheet is only as useful as the quality and accuracy of the information presented in it. In my experience, the balance sheet either gets too much emphasis or not enough. Too much when a business is not profitable, but always falls back on “Well we (they) have strong equity.” Too little when a young business is in high growth phase and is focused on nothing more than the next expansion opportunity, usually at all costs.

The construction of a balance sheet is quite simple: assets on the left, liabilities plus owner’s equity on the right. As the name implies, the two sides must balance. So when liabilities are greater than the assets, there is negative equity. Yes, you can have negative equity, but not for long unless you have an incredibly patient banker.

When describing the instances above where the balance sheet gets too much emphasis, the focus is clearly on the bottom half of the balance sheet, specifically the long term assets & long term liabilities and the owner’s equity. The equity is usually provided by appreciation of long term business assets, and if the equity is built almost solely on that and not retained earnings (net profit from operations) then there is definitely too much emphasis put on the bottom half of the balance sheet, namely equity.

The top half of the balance sheet is where most of the trouble starts. The top half is where we find the current assets and current liabilities; the difference between the two is working capital. Current liabilities have grown to dangerous levels from ever increasing loan and lease payments, cash advances, and trade credit. When current liabilities exceed current assets, you have negative working capital.

If your balance sheet has negative equity and negative working capital, you are the definition of insolvent, and the next phone you make is likely 1-800-AUCTION.

Ok, so there is equity on your balance sheet, more than enough to cover off the negative working capital. A patient and understanding lender might be willing to help you tap into that equity to “recapitalize” the business.  Do that once if you need to. By the time you’ve gone to that well two or three times, you’re likely closer to needing the classifieds to find a job rather than the next deal on equipment.

Equity doesn’t pay bills. Cash does.

Why punish your cash and working capital by rushing debt repayment to create equity?

Plan for Prosperity

The next time you catch yourself, or anyone else for that matter, leaning hard on the bottom of the balance sheet, namely the equity portion, think long and hard about why the focus is not balanced between the top half and bottom half of the balance sheet.

Not only do the left and right sides of the balance sheet need to balance, but so does the top and bottom.

marking a bench 4

Benchmark Against the Best

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Who do you look up to? It doesn’t have to be another business like yours, it can be anyone or any business. Why do you look up to that person or entity? What have they done that you want to emulate?

“If you benchmark yourself against the average you’ll be out of business in 5 years.”

Dr. David Kohl

What Dr. Kohl is referring to is that “average” is not success. As one client said this past week, “Average is the best of the worst, or the worst of the best; either way it’s not where we want to be.”

Personally, I’ve never been a fan of using averages when analyzing business performance. The sample pool will skew the calculation up or down; extenuating circumstances create anomalies in year-over-year business results; the list could go on. In my opinion, average is a useful tool to make yourself feel better about where you’re at. I prefer to make clients uncomfortable about where they’re at so that they are motivated to “Be Better™”.

Here’s someone we all know about who is never not trying to be better: Warren Buffett. Now don’t get me wrong, I’m not suggesting the Oracle of Omaha is without flaw or that he is somehow worthy of unwavering praise, but it cannot be denied that his approach to building wealth has enjoyed success beyond most of our wildest dreams. Recent articles in the Financial Post indicate that Berkshire Hathaway is currently sitting on about $116 Billion in cash and other short term investments. This cash is sitting idle for the purposes of making acquisitions, but Buffett has admitted that he’s struggled to find acquisitions at sensible prices. Also, the article states that Buffett is unwilling to load up on debt to finance deals at current prices.

“We will stick with our simple guideline: The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own,”

Warren Buffett.

It has been written in this series of commentaries that during the elongated commodity super-cycle which ran from about 2007 to 2015 we could find many “average” businesses who appeared to be “excellent”. The appearance of excellence was fed by strong yields and high commodity prices. To translate: everybody was making money, even the worst managers and the high cost operators. To paraphrase Dr. Kohl: when the bottom 20% of producers become profitable, we’re in trouble! It didn’t take much prudence to be profitable during the boom; how did you compare during the boom? How do you compare now?

So when considering who you want to mirror, is it one who has been racking up debt balls-out on the expansion train or one who has been quietly amassing a war-chest of financial strength that can be deployed when the right opportunity presents? Is it one who operates with reckless abandon, or strategic execution? Is it someone who is average, or is it the cream of the crop?

Plan for Prosperity

Benchmarking data is hard to come by; not everyone is willing to share the details of their successes or failures. So to start, benchmark against yourself. How did your most recent year stack up against your best year ever? How do your 2018 expense projections compare to your 2003 expenses? What has been the 10 year trend of your working capital, EBITDA, net profit, total debt, and total equity? Is it something you’d be proud to share? Let me know; I’d love to hear from you on what you learned from this exercise.

S&P500

Don’t Panic

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The markets are on a wild ride over the last week. After an elongated bull market, we’ve seen huge drops in the value of the S&P500, which have created ripples in Canada as well as in foreign markets. Right on cue, we hear investment advisors insist that staying the course and not panic selling is the best thing to do. The markets always go up and go down. After every crisis, brighter days returned which left us to quickly forget how we felt during said crisis.

“This, too, shall pass,” I heard an investment advisor say today in the media.

“Markets take the escalator up, but the elevator down,” is what I’ve heard from many commodity market advisors. This also applies to equity markets it would seem.

It must be asked, “Why is the best advice to hold? Why not get out before the market falls any further?”
The answer: because staying in the market is part of your PLAN!

*Anyone getting tired of hearing about planning yet?

If your PLAN is to buy and sell, in other words trying to time the market to maximize return and even “outperform” the market, then you’ll probably have to go it alone because no investment advisor would work with you. CyclesBut your PLAN, when beginning your investment activities, was to create wealth from long term growth. If that wasn’t your plan, you’d need to be a day-trader; I’m going out on a limb here, but if you’re reading this blog, you’re probably not a day trader.

Back to your PLAN: jumping in and out of the market looks more like this graphic, because as weak humans we’re emotional creatures who make dumb decisions when emotion creeps into the equation.

How does this apply to your business? Have you made emotional marketing decisions in the past? Have you tried to time the market? Read through every point on the graphic; tally up how many apply to you (as in, how many of those have you said in your career?)

 

Plan for Prosperity

If you find yourself wandering, unsure of how much you might benefit from planning in your business, consider the metaphorical genius found in the children’s fairy tale Alice in Wonderland.

When Alice asks the Cheshire Cat, “What road do I take?” his reply is, “Where do you want to go?”
When she says “I don’t know,” his apt response is, “Then it really doesn’t matter (which way you go), does it?”

In essence, what the Cheshire Cat is telling Alice is that “if you don’t know where you’re going, any road will take you there.” There are many different people who have been attributed to that specific statement, so I cannot confirm who said it first. But nonetheless, it applies…to life and to business…to your investment strategy and to your business strategy…

Don’t panic, just decide where you want to go.

Financial data

Questions from Farmers

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Over the winter, I do a number of speaking engagements, usually around finance and management. Here are some questions and comments from the audience, and excerpts of my response.

 

Farmer: How do I improve my working capital and current ratio?

Kim: Simply put, either reduce your current liabilities or increase your current assets…or both! Considering current liabilities, what makes up the lion’s share? Typically it’s lines of credit, cash advances, and loan payments due in the current year. So to achieve the goal of reducing current liabilities, over time (because it will take time) wean yourself off of operating credit. Protect, even hoard, your cash over time so that you can achieve working capital equal to 50% of your annual cash costs. By the time you achieve that level of working capital, your current ratio should be very strong.

 

Farmer: As someone who is still in growth phase, I can’t expect the kind of return on my cash costs that you’re suggesting. Isn’t it okay to run at zero because I’m in a growth phase?

Kim: First, your business and the industry are cyclical, so yes there will be years when your return is zero, but don’t accept being at zero year over year for any length of time. That being said, your growth phase is likely running your cash to zero, and what I’m prescribing as “return on cash costs” is a profitability measure; they’re different. A business can be profitable and have no cash because the cash might be immediately fed directly into the growth of the business. Yes, you’re going to run tight on cash during a growth phase, but don’t accept poor profitability.

 

The following are a sample of comments made by participants:

  • Mentioning “Mission” and “Vision” statements is interesting. I don’t think having one makes you more money, but it’s funny how those that have one are doing better than those that don’t.
  • I’m trying to figure out how to value unborn calves when looking at my working capital.
  • This current ratio figure is going to swing widely depending on when (what time of year) you do it.
  • Don’t buy (something like equipment or pick-up trucks) just because you have some cash.
  • We’ve got someone doing our books for us, and we review all our ratios monthly.
  • I never viewed HR as a risk before.
  • Every farmer should attend this seminar. Even if they know everything you’ve discussed, it’s a good refresher.

 

Plan for Prosperity

There is a reason I use the heading “Plan for Prosperity” for my closing comments: we need to plan our businesses. Whether that be our 10 year strategy, the next 18 months of cash flow, or determining how our growth aspirations would be affected by a rising dollar or rising interest rates, planning is key to your business. And the planning must, yes…MUST, go beyond the crop plan. That crop plan is but one aspect of your business. Don’t ignore the others unless you don’t want prosperity.

When considering how to approach the plans you must address in your business, consider the following three questions in order:

  1. Why do we do what we do?
  2. What do we want to achieve?
  3. How will we do it?

If you’ve managed to provide honest and detailed answers, the rest of the “planning” becomes much more clear.

 

roi

Sustainability – What is It?

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Are you sick of buzzwords? They’re everywhere…all the time. Some are actually impactful, but all are meaningless without context.

One buzzword that actually has some meat is “sustainability,” but in the next breath it’s meaningless because it can be over-used, misinterpreted, or put into the wrong context. Often times the word is attached to “environmental” sustainability and conjures up visions of environmental enthusiasts/activists/evangelists, but the term sustainability is simply defined as being able to last or continue for a long time.
Ref. https://www.merriam-webster.com/dictionary/sustainable

Using that frame of reference, let’s focus on the financial aspect.

You have put many changes in place in your business over the years. Ranging from new/improved processes to increased size & scale, each change has had an impact on your business. No question, your intention has always been to implement a change for the betterment of your business. But prior to initiating any action, was an assessment of the sustainability of the proposed change ever done? How did you quantify the impact of the change?

There are many success stories floating around lately about producers who gave up some rented land and increased their overall business profits from doing so. While this is counterintuitive to the deeply embedded mindset that “bigger is better,” clearly the financial sustainability of the status quo was in question for these particular operations.

What is the financial sustainability of increasing the size of the factory (more land), adding capacity (more/bigger/newer equipment), or increasing labor (more people)? Each of these needs to be evaluated beyond the obvious cash costs. What are the incidental costs, meaning:

  • Increasing the size of the factory (More Land) carries
    • Higher ownership/operating costs for PP&E (property, plant, & equipment);
    • More cash to service debt on the asset;
    • Change in insurance costs (which way will premiums go, up or down?)
    • Change in utilities costs (which way will heat and power go, up or down?)
    • More working capital to be able to utilize the increased scale of the business;
    • Etc.
  • Adding Capacity (More/Bigger/Newer Equipment) carries
    • Higher costs for PP&E (property, plant, & equipment);
    • More cash to service debt on the asset;
    • Change in insurance costs (which way will premiums go, up or down?)
    • Change in operating costs (which way will fuel and repairs go, up or down?)
    • Will you need to add staff (another operator)?
    • Will you need to upgrade your systems and/or technology so the new equipment can operate relatively seamlessly in your existing set-up?
  • Increasing Labor (More People) carries
    • Additional cost for benefits (pension, vacation, etc.)
    • Higher management requirement (to approve holidays, implement performance evaluations, conduct scheduling);
    • Any additional tools for employees to use (hand tools, vehicles, computers, etc.)
    • Training costs.

Each of these points above has an impact on the decision to increase the size of the factory, the capacity of the equipment, or the volume of human capital in your business. Evaluating each decision above with a broader perspective, which would include an expected ROI (Return on Investment), is the best way to understand the sustainability of each option. If the desired change to your business provides insufficient ROI, it puts the sustainability of not only the project but your entire business in question. At minimum, ROI must exceed the cost of borrowed capital that was utilized for the project.

Plan for Prosperity

Buzzwords aside, sustainability is as much of a mindset as it is a business practice. Sustainability deserves a place in your business’ values and mission & vision statements. It should make up a component of every business decision that you consider. If your business is not sustainable, what are your plans for afterwards?

Contrast

Contrast

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Did you ever wonder how so much expansion is going on during what is supposedly challenging economic times?

In this part of the world, in fact in this part of Canada, we are experiencing economic growth that is far less than we’ve enjoyed over the last decade. Government spending has been reduced provincially, and the federal government deficit has grown exponentially; we were teased with drastic changes to our federal business income tax structure; we’re paying higher levels of consumption tax; unemployment has grown; overall confidence has declined.

And yet, we continue to see businesses growing, we see new construction in housing, commercial, and industrial levels, consumers continue to buy new cars and take vacations. On Boxing Day, my thermometer read -32 Celsius but there was a line up outside the doors of the Visions Electronics store prior to their 6am opening. How tough can these times really be?

Notwithstanding the socio-economic challenges that our society faces (none of which I am trying to discount here), behavior would indicate that the “tough times” aren’t as tough as we’re being led to believe.

Contrast the difference between 2 businesses in the same industry: both make widgets, both have sales forces, both face the same challenges of staying relevant in the sleepy industry of widget production.

Company A wants to corner the market and pursues a mission of expansion that leans hard on the idea that “bigger is better,” and expecting it to lead to greater efficiency, sales, and profits. Company A increases debt and increases cash flow spending on capital assets, technology, and marketing to fuel its expansion aspirations.

Company B recognizes the truth in the adage “Innovate or die.” While the widget production industry is sleepy, Company B knows that the status quo is not sustainable. Five years ago, Company B developed a 5 year plan to position itself to be an innovator in widget production. It carefully managed margins and cash flow so as to create a “war chest” of resources.

Which company is building a new production facility in 2018? Which company is at risk of losing not only its market share, but its best people,  to its competitor? Which company will blame the tough economic times for the decline of its business?

The best businesses, and it doesn’t matter which industry they are in, the best businesses plan. They plan for cycles, growth, innovation, and the unforeseen (like the 4 D’s: death, divorce, disability, disagreement.) Businesses that do not plan leave themselves at the mercy of the market, the fickle nature of consumerism, or “tough economic times.”

Plan for Prosperity

Planning, in and of itself, does not guarantee prosperity. Even execution of the best plan does not guarantee prosperity. But in contrast to your competitors who do not plan, who make decisions based on short term perspective and emotion, or who are happy just floating along, there is a clear and obvious line separating the grain from the chaff.

Which side of that line do you want to be on?

Goal Congruence_LI

Goal Congruence

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Have you been beat up enough yet about “defining your goals”? Every article I read relating to business management and every presentation I attend relating to business management always brings up the need for you as the businessperson to “define your goals.” For the record, “business management” in the context of this piece also include business transition (succession) planning.

The beatings will continue. They’ll continue as until everyone doesn’t just listen to the advice, but acts on it.

More often than not, when I ask a client (or even a prospective client) what are their goals, I get a blank stare, as if the concept is a foreign language. Far too many business owners have given little consideration to what they are trying to achieve in the business.

If it’s just a place to work and/or a lifestyle to enjoy, then declare it as your goal.
If it’s a family legacy that has been left to you that you intend to leave to your children, then declare it as your goal.
If it’s to achieve the largest scale in your market area, then declare it as your goal.
If it’s to create financial wealth and prosperity for you and your family, then declare it as your goal.

Don’t just tell the advisor you’ve hired, and paid well, that your goal is “to make more money.” That’s everyone’s goal, whether employed for someone else or self-employed like you. Let’s get serious.

There are four sample goals described above. These four have been chosen because they are the most common goals I have identified in working with entrepreneurs for the last 15 years. What I mean by “identified” is that while some of these goals have been declared, it’s more common that the goal is insinuated by (or surmised from) the behavior of the owners. The problem is when business owners try to combine more than one of those four sample goals listed above; this happens almost all the time.

The first goal listed, lifestyle, is not congruent with any of the other three.
We’ve learned that largest scale does not automatically equate to increased financial wealth and prosperity; again, not necessarily congruent.
The only congruity among the four samples is between family legacy and financial prosperity.
– yet behaviors often do not follow those goals.

It is advisable to have multiple goals in business and in life. In business, none of the goals we may have can be achieved without prudence in financial management. Remember, profit feeds your business, it feeds your family, and it feeds your ability to spend time with your family & on other things you enjoy. If you feel uncomfortable declaring one of your business goals to be financial wealth because you don’t want to be thought of as a greedy person, then don’t declare it, but for the sake of your business’ and your family’s future, behave like it. If you’re not profitable, if you’re suffering under the pressure of non-existent working capital, or worse, then none of your goals are achievable. Period. Hard stop. I’m sorry to have to deliver that cold truth in such a harsh manner.

To Plan for Prosperity

The challenge I lay out for all entrepreneurs is this: be clear on why you do what you do, establish working parameters and behaviors that support it, and evaluate your progress & results regularly to ensure you’re still on track. How sad would it be to never check the map for the entire journey only to end up somewhere you never meant to be?

Not only must your goals be congruent, but your behaviors must be as well. You and your business face enough turmoil, challenges, and risks. Don’t create more challenges by making decisions that aren’t congruent with your goals.

Changing Paths

Changing Paths

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Two summers ago, 5 friends gathered to undertake a 2-day back country mountain hike. All the plans were finalized well ahead of time. Everyone invested in proper gear for such an adventure: backpack, drinking water storage, hiking boots, etc. The weather was perfect. The gear lived up to its expectations. No one got hurt. The entire excursion truly was a success.

The best intentions ahead of such a trip were evident, yet preparations had to be made for unpredictable scenarios such as encountering a bear, inclement weather, or getting lost. There is no cell service in the back country…

In this case, everyone was prepared for challenges along the way.

Contrast the story above with a trip into the city, or even a longer trip to location out of province. If it’s a day trip or a short run, as long as there is enough fuel in the vehicle, all you might grab is a jacket on your way out the door. Longer journeys might lead you to give the vehicle a servicing beforehand, fuel it up, and load it with some luggage and possibly snacks for the drive. You know what route you’ll take and you know how long it takes to get there. Off you go…

Along the way,

  • you find your primary gravel road is getting a culvert replaced (forcing a 5 mile detour);
  • you drive through an unmarked rough patch on the highway that causes your coffee to spill on your lap;
  • you come up to a minor collision where the emergency vehicles (tow trucks, police) have slowed traffic which is now backed up one-eighth of a mile;
  • The total drive time of 1 hour (or 2 hours, or 7 hours) other than the 3 points above were “ideal driving conditions” with smooth roads, light traffic, and a tail wind.
  • You arrive at your destination 20 minutes later than planned but safe and sound.

We might describe this story as a terrible excursion where nothing went right. Yet, we did arrive safely, without injury (or worse.)

In the first story, about the mountain hike, the friends were later discussing doing another such trek in the future. It is good for the soul, after all. In that discussion, comments were made about not needing to “over-pack” next time (because the first trip had no significant challenges likes bears or snow.)

In the second story, unforeseen obstacles hindered progress and challenged our perspective of what a successful trip really is.

To Plan for Prosperity

The journeys above are a metaphor for your business.

When tackling something new, it is common to over-prepare. Then if the venture is successful, it is easy to shuck all the preparedness that wasn’t needed the first time around which could put you and your business at significant risk. What in your business is equivalent to running into a bear on a back country mountain path?

Conversely, when setting out on a familiar trek, any glitch (no matter how small) can cause us to get upset, even angry, and wonder “why is this happening to me?” We fail to recognize that we didn’t plan for any contingencies, and left ourselves at risk. What in your business is equivalent to a 5 mile detour, or hot coffee spilling in your lap?

How do you respond when revenue falls short of expectations, or when a key employee resigns? In business, and in life, we have to be willing and able to change paths, sometimes by choice while other times we are forced.

Our ability to adjust is critical to our success.

 

Perspective

Perspective

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What do you want to accomplish between now and Oct 1, 2018?

If I had asked many of you that question one year ago, you might have provided a response that would make you cringe using the lens of today. Last year, may farms were suffering from excess moisture, and long drawn out harvest. On this date one year ago, there were millions of acres yet to be harvested in western Canada. If one year ago you were hoping for a hot dry 2017, well…you got it.

How has your perspective changed over the course of a year? What is affecting the change in your perspective? If you’re more concerned about short term fluctuations rather than big picture issues, such as a recent market correction versus the tax changes currently proposed by our federal government, then you’re probably looking down the hood of the truck instead of down the road.

If you’re more concerned about short term fluctuations rather than big picture issues, then you’re probably looking down the hood of the truck instead of down the road.

My best client relationship has evolved from our original work of clarifying Unit Cost of Production by drilling down operating and overhead costs, so that we are now pursuing 5 year expansion strategies and establishing tactics for handing off management activities as part of a transition plan that is still 5-10 years away.

In the next breath, when asked “What is the greatest challenge on farms today,” I regretfully cutoff whoever is asking the question by blurting out “cash flow.”

I see numerous farms who do not suffer cash flow challenges. They experience the same weather, the same markets, the same interest rates. Yet somehow these farms do not suffer under the same cash flow pressure. Why is that?

Perspective.

Successful businesses have a long term perspective. Those businesses recognize the variability in the aspects affecting their business that they cannot control (like weather, markets, interest rates), and as such, they prepare themselves and their businesses for what’s coming “down the road.”

Looking down the hood instead of down the road doesn’t give you time to prepare and react to what’s coming up ahead.

Here is an easy recipe to help prepare for what’s coming up “down the road”:

  1. Understand cost of production, right down to the paperclips.
  2. Get lean in how you manage your operating and overhead costs.
  3. Maintain modest personal drawings.
  4. Eliminate unnecessary assets and the debt they bring with them.
  5. Build working capital to a minimum of 50% of annual cash costs.

By implementing these 5 steps into your action plan before spring, you will instantly be miles ahead of your competitors one year from now.

To Plan for Prosperity

There is no crystal ball in my possession, so I cannot predict what is coming down the road. What I can tell you is that I have seen the effects of business cycles on the unprepared, I have seen the effects of poor perspective on the oblivious. Conversely, I hold great admiration for the business people who had the foresight to control all that they were able to control, including how they were affected by that which they couldn’t control.

What’s your perspective?

Canola 100 fail title

Why the Canola 100 Challenge is So Wrong

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Announced two years ago around this time, the Canola 100 challenge baits farmers into taking part in a “moonshot”: an attempt to produce a verified canola yield of 100 bushels per acre. It isn’t that efforts to increase yield aren’t a good thing, because they are. But by what means are we attempting to achieve these yields?

This “contest” may be virtuous in spirit, but it overlooks the not-so-old adage that “better is better before bigger is better.” That applies to this argument too.

The rationale behind my position is supported in this Western Producer article that describes a farmer’s chase of this moonshot, throwing everything including the kitchen sink at his crop in an attempt to cash in on the Canola 100 prize. (Spoiler alert: it failed miserably.) This particular attempt can be summarized in this quote from the article:

The fertility program cost $300 per acre more than what was done to the check field but yielded only 70 bu. per acre, which was 1.4 bu. per acre more than the check field.

The driving factor behind efforts to maximize yields should be ROI (Return on Investment) and Gross Margin. Doing so would focus on maximum economic yield, not maximum production yield. There’s something about that pesky law of diminishing returns that gets overlooked when trying to shoot for the moon…

If maximum economic yield is the target, then Gross Margin is the focus. How that gross margin is achieved is up to each producer, but make no mistake about where the focus needs to be. In my experience, minimum gross margin, that is gross revenue less seed, chemicals, and fertilizers, at MINIMUM needs to be 65% to sustain the business. High cost operations need greater gross margin to cover all those costs.

To put that in reverse, if 35% of your gross revenue can go to crop inputs, then each $1.00 invested into inputs should return $2.86 in gross revenue. To apply this to the example above, the “extra $300 per acre” in fertility should have delivered $858/ac in gross revenue. If Canola was $10/bu, that’s nearly 86 bushels per acre above the check field.

Canola 100 fail

Let’s push the argument harder: if the example above actually hit 100 bushels per acre, and acknowledging the control field yielded 68.6 bu/ac, the gross margin on the Canola 100 plot was $14 per acre, or about 4.67%.

This is IF the 100 bushel yield was achieved…and face it, $14 gross margin doesn’t pay many bills; in fact, it wouldn’t even buy the fuel for the contest plot.

To Plan for Prosperity

Make no mistake about the messaging here: as a producer of commodities, you need the bushels!!! But do not lose sight of the fact that as a producer of commodities, your only chance of remaining sustainably profitable is to produce at the lowest cost per unit. Period. Chasing maximum yield at a 1:1 ROI won’t get it done.

1. What is your historical gross margin?
2. What are your operating and overhead costs?
3. Know these to be able to plan for maximum economic yield.