The Value of a Dollar

We're between friends -- have you ever blown a dollar of your employer's money? Come on, be honest! Of course we all have. You know the personal phone call we made on the work phone; the personal mail we ran through the company mail; the faxes, the pens, the expense claim that was kind of work related and we rationalized it with, "Hey, you know I was traveling …"

Well, those pennies add up to become dollars, and the dollars end up becoming hundreds, thousands, and potentially millions in some large organizations.

I hear you say, "Okay, but what's the big deal? My company can afford it!" Well, can they? That is the question.

What's the average net income a business makes as a percentage of its sales? Answer: about 8%. That means for every $10.00 in sales it makes 80 cents profit.

So imagine what happens if you waste $1 in expenses: $1 divided by 0.08 (which is 8% expressed as a decimal) multiplied by 1 (which is 100% expressed as a decimal) equals $12.50. That means your employer has to make $12.50 extra in sales to make up for that $1 to still get an 8% profit margin and maintain an 8% money-making model.

What that means in this example is that the sales and marketing folks have to sell 25% more ($12.50-10.00) to still get 80 cents profit.

What happens if we add a few zeros? Well, imagine a company that wastes $100,000 on a project and they only make 8% profit. The numbers work the same -- this company now has to sell 25% more to still make $8,000 profit!

Now, any metaphor if analyzed enough eventually breaks down, but do you get the point? It's important to be conscious of every dollar you spend of your company's money. You can relate this principle to your personal finances -- what's that old phrase, "a dollar saved is a dollar earned"? If you think about it, it's actually more than a dollar because every dollar is taxed about 20%; so $1 saved is really like not having to earn $1.20!

More than ever before it's vitally important, especially in tough economic climates, to understand your company's money-making model. Treating your employer's money as if it were your own (and even better perhaps!) makes you an invaluable asset (forgive the pun!)

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"Someone who is penny wise, dollar foolish can be very careful or mean with small amounts of money, yet wasteful and extravagant with large sums."-- Anon.

"Wealth is treacherous and the arrogant are never at rest." -- Habakkuk 2:5 

By Paul Butler, Client Partner – Newleaf Training and Development
Newleaf Training and Development deliver seminars, keynotes, and coaching to help people and organizations better manage themselves, lead others, and build business financial intelligence.  Based in Valencia, CA, Newleaf Training and Development has served clients in 28 States, China, India, and Western Europe since 2006.  Visit www.newleaf-ca.com for more details.