OUNTAIN STATTS

FRED CARUSO executive secretary

\t OU have been using the term I "gross profit" from just about the first day you got into the lumber business. Your boss used it. Maybe your own dad taught you how to use it. Your business teachers used it. Everybody uses it. It's a common business term.

But wait a minute. Is there really such a thing as "gross" profit? Think about it as a term that must relate to the only thing that really counts - true, after-tax profit. Is there such a thing in that context?

Does it really matter? lt's just a term. Gross profit is the same as gross margin and most people know it. You start with a lot of gross profit and end up with just a little bit of net. Everybody knows that! Don't they?

No, they don't know or understand, which is the motive behind our 1989 Profit Awareness Program, and, besides, the use of the term is wrong.

Most of us will agree that the term "net profit" is pretty close to being the only kind of profit that counts, pending taxes and other potential, unpleasant last-minute surprises. But note that I said most of us would agree, not all. It is simply not that clear. Some insist there is only one kind of profitthe final, final profit and that is allso forget about net. But for discussion purposes, most of us have a similar picture of "net" profit.

But back to the guilty, inaccurate term "gross profit."

If there were such a thing as "gross" profit from which your business derived the only thing that counts, "net" profit, it would follow (and we must quote):

"There are two kinds ol profit. (l) gross profit, and (2) net profit."

That statement simply does not follow. lt is inaccurate. In fact, it'is wrong.

If you wonder why employees get confused, or why employees may think you are charging obscene profits when you mark something up 50% to get a 33.33'Xr margin, or some may even complain because they don't understand why their paycheck is so small while your profits are so high (so you drop the word gross, a mere oversight, but it's all the same to them), consider the source of the confusion. It's probably your repeating the same incorrect terms every one else repeats.

Gross profit is not "profit," so why do we insist on using it? Stamp out the use of misleading. terms! Become a leader. Decide today to switch your vocabulary away from gross profit to using gross margins (or simply margins). Make margin your operating profit start- ing point, not gross profit.

Through our Profit Awareness and Education Program, we hope to make everyone - owners, managers, employees and customers and our business advisorsmore aware of the need for profits and how businesses go about earning them. Terms like gross profit simply perpetuate confusion.

Here are a few tips for clarifying thinking about profits:

(l) It all begins with margin, or gross margin if you insist. You can sell product from now until eternity, but you won't generate one penny of retail operating profits without margin. Some people do not believe it, but it's a fact.

(2) Mark up is simply a lactor that is needed in order to achieve margin. You multiply the delivered cost of the product by the required mark up or its equivalent multiplier in order to get the desired margin. Mark up is NOT a goal, but simply a process necessary in reaching the goal, which is a margin suffrcient for profit.

(3) Cost control is essential to profitability and is everyone's responsibility. A l% reduction of costs (as a percent of sales ) has the same effect on net operating profits as a l0lo increase in margin. But cost reduction assumes there is sufficient margin from which costs can be subtracted! Re-read tip No. L

(l'ltase turn to pagc 27)

WAYNE GARDNER executive vice president

THE FIRST year of a two year season for the State of California legislative mbers is 1989-1990.

Approximately 5000 bills, all having an effect on the citizens of California, were introduced belore the cut-off date this year.

Western Building Material Dealers Association, a group of associations representing the building material industry, uses a legislative advocacy firm in Sacramento to watch the bills. Ron Barrow and his associate Carolyn McCapes group all the bills affecting the building material industry and send them to a committee for action.

Various members of the committee look at different areas of legislation so that each member doesn't have to read every bill. Not too many years ago the primary emphasis of the organization was on the Mechanics Lien Law. This law is still a major concern, but other areas are now studied as well. For example, we now look at codes & standards, environment and energy, collection and liens, general industry, labor relations, contractor license laws, public works, taxes and fees. of the 5000 bills this year, the building material industry has a real interest in something over 100 of them. This has been backed down from over 200, in which we either had relatively little interest or the bill just didn't go anywhere.

For each bill, a position is taken and the path of the bill is watched. Should special attention be necessary, the appropriate parties within the industry go to Sacramento and lobby the position taken. Ron Barrow's office writes letters and does the tracking for Western.

The group, which meets in Sacramento.once a month durins the earlv part of the year, will meet again in August. lf you add this service to the educational programs, the seminars and meetings that LASC sponsors, plus the insurance programs available for the industry, LASC can offer benefits that more than cover the cost of the dues.

How important it is to watch this legislation. And it's being paid for by those firms who are members o[the participating organizations. This is just another example of the fact that an association does for you what you can't do for yourself, because of the time and money that would be involved.

The Lumber Association of Southern California has been an active participant in Western almost since its inception. In addition to legislative activity, LASC is involved in calling on building departments, working with them on lumber grades, working with designers, specifiers and others on lumber grades and species, plus being part of National Lumber and Building Material Dealers Association in Washington, D.C. NLBMDA's function in Washington is the same as Western's is in Sacramento. NLBMDA represents the various retail lumber and building material associations throughout the United States.

As we have said - association membership doesn't cost - it pays. Try ityou'll like it.