The other day…. A good friend of mine Greg from The Mortgage Busters Show invited me to present to a bunch of teenagers on the subject of finance.

Let me explain Greg home schools his children and uses the networks available to support all mums and dads who home school their children. One of the networks is the Crossway Baptist Church in Burwood.

We learn a lot of subjects when at school however there are a lot of bits and pieces that are missing one of those bits and pieces is finance. It is never too early to learn about money and how it works in society and how we can responsibly manage our lot when it comes to the holy dollar.

Greg had been talking with the class for several weeks about various subjects regarding finance and how it works. However we had not gone into any great detail on how deep Greg had gone into the subject, so I thought I would try to keep it light and expose them to a couple of light bulb moments I have had in past years.

The first was delivered by John Mullen now heading up Asciano, I first met John at Ansett Air Freight many years ago, many years before mobile phones and a Power Point presentation consisted of plastic transparent sheets filled with content being shown over a light projector. Times have changed.

This was a high power presentation being given to a couple of hundred sales people, mangers and staff at the Brisbane Sheraton. Ansett Air Freight had been bleeding money for many years before and John had just joined the crew as General Manager.

Wide eyed with the music from the film called Chariots of Fire playing sending chills up and down your back I remember John taking to the stage and began to talk about where the business is and what the what if’s was and announced the secret to our future financial success. And he was about to reveal the success formula.

A – B = C A being Revenue and B being Costs and of course C represents either Profit or Loss

This was my first introduction to ABC costing, which when looking back to its simplicity was oblivious and effective. I have always carried this 101 formula through all my business life and tried to apply it in its simple form.

And it has always worked. It is simple.

We all want profit, that is, at the end of the week, month or year we want to have excess cash in the bank or we have accumulated assets along the way. However some of us have spent more than we have earned and have had to resort to credit to finance our life style.

With this simple example of ABC costing to create a profit we have two basic options and those two options can be further broken into various other functional categories.

So if we are currently making a loss to change the situation we have two options:
1. Increase A i.e. Revenue
2. Decrease B i.e. costs

Simple? In business there are a plethora of options and sadly there are lots of management that refuses to change the way they operate and go broke and have to call in the receivers

This is called Bankruptcy.

The first option is to increase revenue, the simple options are to increase prices, increase volumes or introduce new products.

The other option is to decrease your costs through either increasing your volume so you unit cost price reduces or you reduce your hard costs such as rent, labour costs and raw material costs.

This is very much 101, however very effective to grab some low hanging fruit and put a company back into profit.

A personal budget is very similar, but harder. We see so many families who up to their eye balls in costs that they bank roll their life style on credit, usually with numerous credit cards and personal loans. Often we get called in to roll these debts up into the home loan to reduce their out goings, which is a positive step. However without changing your costs which is related to lifestyle activities, the cycle will start again.

Revenue is harder still. With a wage the options are limited to increase the inflow of cash into the house hold. The obvious is overtime, second job or study for a better job or a promotion. There is the option to start a business as your second job, this option has many options.

The second part of the story you will have to wait until NEXT TIME!!!

Until next time…Live Your Life!!!

Steven Hudson from Tenby Finance as seen on The Mortgage Busters Show