Download - Understaning your Business
UNDERSTANDING YOUR BUSINESS
PAINTING A PICTURE OF YOUR BUSINESS WITH THE NUMBERS
HOW SHOULD WE USE THE
FINANCIAL RESULTS?
• You put a lot of effort into generating the financial results on a monthly basis.
• Accounting is not an art, but understanding what the numbers tell us is an art.
• The numbers paint a picture of what’s working and what needs attention if you look in the right places.
LET’S LOOK AT SOME EXAMPLES
• The numbers can take the emotions out of a business decision.
• Trends can show how the business is succeeding or deteriorating.
• Details in the financial results can show investors the value of your business.
that are used to measure productivity and operating results
EMOTIONS CAN LEAD US DOWN THE
WRONG PATH
• A plastics manufacturing company had a line of products that was unique to their shoe manufacturing customers.
• One of the principals in the business spent a lot of money and energy setting up the manufacturing process.
• This line of business was losing money.
LET’S LOOK AT THE NUMBERS
• The variable cost of the product was $.10/LB more that the selling price.
• Only direct costs (material, labor & freight) were included in variable costs.
• Competitive pressure would not allow for a price increase.
• After several months of discussions, the owners were convinced to shut down the product line.
CONCLUSION
• Emotions can prevent a business from making good decisions.
• You need to pay attention to the numbers!!!
FINANCIAL TRENDS CAN SHOW WHERE
PROBLEMS ARE HIDING
• Small box clothing retailer had a successful business selling college logo products in college towns.
• Low retail prices resulted in good growth in same store sales.
• The company expanded into large box retail locations with initial success due to low price points.
• Same store sales declined after second year of operations due to market saturation.
LOOKING AT THE TREND COULD HAVE
SAVED THE BUSINESS
• Rapid opening of new stores masked the down trend in same store sales at existing stores.
• Inventory growth was outpacing the growth in store openings.
• The company raised millions in venture funding based on the growth of new store openings.
• The venture fund didn’t look at the same store sales growth and inventory growth.
• 90 days after raising the venture funds, the company went bankrupt.
CONCLUSION
• If you don’t look at the important numbers and trends in the business, you will not see what’s coming.
SUCCESSFUL BUSINESS LOOK SUCCESSFUL
IN THE DETAILS
• An apparel manufacturer was showing annual operating profits for the last 5 years and growing the top line.
• The company has a broad customer base and had recently won a major contract with a very significant customer.
• Margins at the SKU level were generally over 30% which was slightly above industry trends.
• There was only one small business segment that had excess inventory based on the sales in that market.
THE TRUTH IS FOUND IN THE DETAILS
• The owners had an opportunity to sell the business.
• The buyers looked long and hard at the individual components of the business and the trends over the last few years.
• With the exception of one small line of business, the details showed good margins and good growth.
• The sale was completed and the company was successfully integrated into the new owners business.
CONCLUSION
• Knowing the key numbers that drive the results for your business will tell you and others what’s working and where the challenges are lurking.
PAINTING A PICTURE OF YOUR BUSINESS
WITH THE NUMBERS
• Do you know what the most important numbers are for your business?
• What products and customers contribute the largest percentage to your bottom line?
• What products and customers are you losing money on and why?
• Are the assets on your balance sheet masking the real financial results?
• How often are you asking these questions and demanding the answers?
CONCLUSION
• Knowing the key numbers that drive the results for your business will tell you and others what’s working and where the challenges are lurking.
ABOUT THE PRESENTER
• Mr. Ingalls is an independent financial consultant working with businesses to focus the management team on the bottom line and develop a financial profile for the business.
• Contact InformationStephen Ingalls [email protected]