follow the money presented 20100202

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Sigma Free Presents… Provided by Sigma College of Small Business, Inc. Follow the Money Find the Value in Knowing Your Financials

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Analyzing financial statements is not why you started the business! But, learning to read and affect your balance sheet and profit and loss (P&L) statements will result in better and more profitable decision making.

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Page 1: Follow The Money Presented 20100202

Sigma FreePresents…

Provided by Sigma College of Small Business, Inc.

Follow the MoneyFind the Value in Knowing Your Financials

Page 2: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.2

Introductions

Keynote Topic

Follow the MoneyFind the Value in Knowing Your Financials

Keynote Conclusion

Follow the MoneyFind the Value in Knowing Your Financials

Break – Refreshments and Networking

Ask Questions Any Time

Agenda

Follow the Money – Find the Value in Knowing Your Financials

Page 3: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.

Financial StatementsNot Just for Banks and Accountants

• Banks– Evaluate “health” of the business

– Ability to pay back loans

• Business Owners– Evaluate performance

– Improve the “health” of the business

– Improve ability to pay back loans

– Make sound financial decisions

3Follow the Money – Find the Value in Knowing Your Financials

Page 4: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.

Key Financial Statements

4

2008Profit and Loss Statement

2008Statement of Cash Flows

2008Statement of Owner Equity

Balance Sheet12/31/2007

Financial Position at a specific point in time

Balance Sheet12/31/2008

Financial Position at a specific point in time

Summary of transactions over a period of time that accounts for differences 

between balance sheets

Account Balance:$1,000

Account Balance:$2,000

How did the balance go from $1,000 to $2,000

Follow the Money – Find the Value in Knowing Your Financials

Page 5: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.

Balance Sheet

5

AssetsOWNED

LiabilitiesOWED

Owner EquityAssets ‐ Liabilities

Owner’s Equity = Assets ‐ Liabilities

Current AssetsQuickly convertible to cash

(bank accounts, accounts receivable, inventory)

Fixed AssetsNot quickly convertible to 

cash(equipment, facilities)

Current LiabilitiesTo be paid within12 months(loan payments for year, accounts 

payable, payroll liabilities)

Long Term LiabilitiesDue beyond 12 months

(Long term loans)

Follow the Money – Find the Value in Knowing Your Financials

Page 6: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.6

Widgets, Inc.Balance Sheet Assessment

Balance Sheet is a “Snap Shot” in time

Total Assets = Total Liabilities + Owners Equity

Analyze “trends” for changing 

financial positions

Follow the Money – Find the Value in Knowing Your Financials

Page 7: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.

Profit and Loss Statementaka The Income Statement

7

Revenues

Expenses

Net IncomeRevenues ‐ Expenses

Gross RevenueTotal amount brought in from 

operationsaka Sales, Gross Sales, Net Sales

“Operating” ExpensesPaid for selling and delivery(payroll, marketing, administration)

Interest, Taxes and AmmortizationNot “operational”

Gross MarginAmount left over after the “Cost of Goods Sold” (COGS)

aka Gross Profit, Margin

Follow the Money – Find the Value in Knowing Your Financials

Page 8: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.

Widgets, Inc.Profit and Loss Statement

8

Income Statement tracks across a time 

period

Analyze “trends” for changing operations

Operational Earnings

Impact of Financial Decisions

Follow the Money – Find the Value in Knowing Your Financials

Page 9: Follow The Money Presented 20100202

Sigma FreePresents…

Provided by Sigma College of Small Business, Inc.

Follow the MoneyFind the Value in Knowing Your Financials

Page 10: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.

Ratio Analysis

• Liquidity– Analyze ability to meet current obligations

• Ratio Trend Analysis– Compare line items with a basis

• Total assets or Gross revenue

• Return on Investment– Compares result with the assets or investment available

• Inventory– Evaluate efficiency in which inventory is managed

10Follow the Money – Find the Value in Knowing Your Financials

Separates comparison from the number magnitude‐ Compares “apples to apples”

Page 11: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.

Widgets, Inc.

Ratio Analysis ‐ Liquidity

• Actual asset values go up• Decline in ratios indicate a weaker, more “leveraged” financial position

• Indicators that company is positioned for growth• Equipment purchase

• Higher inventory and A/R

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•Working Capital

• Current Assets – Current Liabilities• Current Ratio

• Current Assets / Current Liabilities• Acid Test or Quick Ratio

• (Current Assets – Inventory) / Current Liabilities

Follow the Money – Find the Value in Knowing Your Financials

Page 12: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.12

Decrease in the relative Gross Margin

More assets, but less income – reduced ROIMore efficient 

inventory management

Result of increased leverage

Return on AssetsNet Income / Ave. total Assets

MarginNet Income / Sales

TurnoverSales / Ave. total Assets

Follow the Money – Find the Value in Knowing Your Financials

Widgets, Inc.Ratio Analysis‐ Performance

Page 13: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.

Management Statements

• Project and Job Statements– Compare job revenue to job expenses– Determine job profitability

• Customer Statements– Compare long term value of cutomers– Track customer type to identify your best markets

• Managerial Accounting– Measure the direct costs of products and process– Evaluate and assign overhead– Identify and track improvement efforts

13Follow the Money – Find the Value in Knowing Your Financials

Page 14: Follow The Money Presented 20100202

Copyright 2010 Sigma College of Small Business, Inc.

Critical Business Areas

Strategy and Planning

Marketing and Sales

Accounting and Finance

Operations and Quality

Leadership and Administration

Technology and Innovation

Sigma College of Small Business

• Upcoming SigmaFree Classes– 2/9 – Choosing the Right Advertising

– 2/16 – What’s New? Technology and Innovation for Small Business

• Upcoming Sigma College Course– Marketing and Sales for Small Business

• Thursdays, 7:30am‐9:30am, 2/11‐3/4, 4 weeks

• Wednesdays, 3pm‐5pm, 2/17‐3/10, 4 weeks

– Free personal consult

– “Flex” schedule – attend either class

14Dedicated to the Learning Needs of Small Business!