I'm sure you have heard the old saying, "Give a person enough rope and he will hang himself." Well, I have a different "old saying" about rope. "Use Rope properly, and you can increase your profits." Sound confusing? Let me explain.
I use the word "ROPE" as an acronym. The "R" is for revenue, "O" for overhead, "P" for profits, and the "E" for earnings. The formula is, increase revenue without increasing overhead will increase profits and earnings in geometric proportions. Let's see how it works.
We will start with revenues of $50,000, overhead of $45,000, profits and earnings of $5,000. (To most of you, if your accountant said this, you would say it's time to bring in a partner and open a branch office! Let's get back to the example.) If we increase revenue by only 20 percent to $60,000, and keep overhead at $45,000, the profit is now $15,000, or an increase of 300 percent. Not bad! Suppose we increase revenue by 50 percent to $75,000, at the same overhead of $45,000. The profit is now $30,000, or a 600 percent increase. Increase revenue 100 percent to $100,000, and the profit is $55,000, or a 1,100, percent increase.
Can this simple rule of economics be helpful to you? I certainly hope so! Try applying it to the growth in your practice. Can you increase your revenue without increasing overhead? Give it a try. It's a very simple formula to follow. Start now using "ROPE" to increase your profits instead of hanging yourself!
Another Greenfield rule of economics is, "Make money, save money, make money on your money." Most people "spend money, pay taxes, and pay taxes on the money they spend." Which do you do?
Here's another handy rule of economics that I can't claim, although I wish I could. Money doubles at a given interest rate in a number of years equal to the number 70 divided by the interest rate. For example, money at 5 percent interest will double in 14 years (70 divided by 5 = 14 years). That is only half of the equation. Inflation cuts the value of money in half in the same length of time. Unfortunately, in this day and time you can't have one without the other. That last line is almost as important as the first one. This formula is extremely important when accumulating money for retirement. It doesn't take very long for inflation to erode a retirement income, if you live too long, and we all hope that we do that!
Speaking of retirement, are you planning for yours? It's never too early to start. Keep in mind one important fact: People are living longer. The number of 100-year-olds is expected to double by 1990 to 50,000. By the turn of the century, it will be over 100,000, and by 2050, exceed 1,000,000. That is 40 times today's total. What does this mean for your retirement? It means that you will probably need to have retirement funds that will last for 40 or more years. Most plans today are not designed with that in mind. By the year 2000, 21 percent of the population will be over the age of 65. Do you think that will affect the Social Security System? All I can say on that subject is don't depend on it as your main source of income at retirement. Need I say more?
