You probably have fond memories of middle school math. Well, okay, that was a crappy opening line to pull your attention in to a blog, but the point is, there was some good stuff for the small business manager in middle school math. One of them was the concept of delta, also known as rise over run, or also known as the slope of a line. Basically, delta measures how much one variable changes, given a change in another variable. In high school, or perhaps university calculus, you learned to call it the first derivative – but who remembers anything from high school math or the first year of university?
In business, delta refers to the amount that sales or profits change, given a change to one of the inputs. For instance, how much will profit change if sales prices are increased by one percent? Surprisingly, the answer is rarely one percent as most business relationships are not quite that linear or straightforward.
For the small business manager, cash flow is the key variable. Ultimately, all business comes down to maximizing positive cash flow. So what’s your biggest delta for cash flow? What is the one variable, or business activity, that if you increased it by one percent would produce the biggest increase in cash flow? Knowing that, it knowing how to manage your business.