knowing where you stand (finance) teleconference 6/26
DESCRIPTION
First BAP teleconferenceTRANSCRIPT
1© 2009 Wright Business Institute, Inc.1
Finance forSmall Business Ownership And Success —An Adventure In Transformation
© Wright Business Institute, Inc.
2© 2009 Wright Business Institute, Inc.
What’s In It For Me?
► More certainty
► Greater accuracy, analysis, and direction
► Greater understanding of how your business works, what works, and what does not
► Improved planning
► Improved problem solving
► Less confusion
► A clear scorecard and feedback
3© 2009 Wright Business Institute, Inc.
The Six Small Business Errors in Finance
► Thinking all money you pay yourself is profit
4© 2009 Wright Business Institute, Inc.
The Six Small Business Errors in Finance
► Thinking all money you pay yourself is profit
► Not keeping good numbers
5© 2009 Wright Business Institute, Inc.
The Six Small Business Errors in Finance
► Thinking all money you pay yourself is profit
► Not keeping good numbers
► Not paying yourself for key roles
6© 2009 Wright Business Institute, Inc.
The Six Small Business Errors in Finance
► Thinking all money you pay yourself is profit
► Not keeping good numbers
► Not paying yourself for key roles
► Not trusting your numbers
7© 2009 Wright Business Institute, Inc.
The Six Small Business Errors in Finance
► Thinking all money you pay yourself is profit
► Not keeping good numbers
► Not paying yourself for key roles
► Not trusting your numbers
► Thinking accountants know business (they know accounting)
8© 2009 Wright Business Institute, Inc.
The Six Small Business Errors in Finance
► Thinking all money you pay yourself is profit
► Not keeping good numbers
► Not paying yourself for key roles
► Not trusting your numbers
► Thinking accountants know business (they know accounting)
► Over Financing
9© 2009 Wright Business Institute, Inc.
Your Two Scorecards – Balance Sheet and P&L Statement
►Balance Sheet—Lets you know your overall financial position in terms of assets and liabilities
►Profit and Loss Statement (P&L)—Lets you know the score of any given unit of time from daily to monthly, quarterly, and annually. The P&L gives you a dynamic picture of what and how you are doing.
►Today we will focus on the P&L.
10© 2009 Wright Business Institute, Inc.
Learning to “Read” Your P&L
Learning to read your P&L requires
► Understanding the basics of the P&L
► Reading the percentages within the P&L
► Reviewing comparisons of the P&L against last year, budget, or other variables
► Understanding key ratios and success factors
11© 2009 Wright Business Institute, Inc.
The Profit and Loss Statement (P&L)
►Revenue– Money in
12© 2009 Wright Business Institute, Inc.
The Profit and Loss Statement (P&L)
►Revenue– Money in
►Direct or Variable Costs—Money out
13© 2009 Wright Business Institute, Inc.
The Profit and Loss Statement (P&L)
►Revenue– Money in
►Direct or Variable Costs—Money out
►Gross Profit
14© 2009 Wright Business Institute, Inc.
The Profit and Loss Statement (P&L)
►Revenue– Money in
►Direct or Variable Costs—Money out
►Gross Profit
►Fixed (Overhead) Costs
15© 2009 Wright Business Institute, Inc.
The Profit and Loss Statement (P&L)
►Revenue– Money in
►Direct or Variable Costs—Money out
►Gross Profit
►Fixed (Overhead) Costs
►Net (Profit)
16© 2009 Wright Business Institute, Inc.
A Small Business P&L
Acme CompanyProfit & Loss StatementFor Month Ended December 31, 2008
Revenue (Sales) 46,895
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses 21,011
Net Profit 5,019
17© 2009 Wright Business Institute, Inc.
Revenue & Cost of Sales/Delivery Categories
Acme CompanyProfit & Loss StatementFor Month Ended December 31, 2008
Revenue (Sales) 46,895
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses 21,011
Net Profit 5,019
Revenue (Sales)
Consulting 20,451 Products 26,444 Open CategoryTotal Revenue (Sales) 46,895
Cost of Sales & Delivery
Sales Commissions 4,298 Delivery Costs 16,567 Open CategoryTotal Cost of Sales & Delivery 20,865
18© 2009 Wright Business Institute, Inc.
Fixed Expense Categories
Acme CompanyProfit & Loss StatementFor Month Ended December 31, 2008
Revenue (Sales) 46,895
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses 21,011
Net Profit 5,019
Fixed Expenses
Payroll 5,104 Outside services 6,532 Rent 4,875 Supplies 1,155 Taxes (real estate, etc.) 1,000 Utilities 842 Advertising 288 Telephone 389 Car, delivery and travel 387 Accounting and legal 189 Insurance 250 InterestDepreciationOpen CategoryTotal Expenses 21,011
19© 2009 Wright Business Institute, Inc.
Percentage
Change figures
Dec
08
Act
uals
% o
f To
talR
even
ue
Revenue (Sales)
Consulting 20,451 44%Products 26,444 56%Open CategoryTotal Revenue (Sales) 46,895 100%
Cost of Sales & Delivery
Sales Commissions 4,298 9%Delivery Costs 16,567 35%Open CategoryTotal Cost of Sales & Delivery 20,865 40%
Gross Profit 26,030 56%
Fixed Expenses
Payroll 5,104 11%Outside services 6,532 14%Rent 4,875 10%Supplies 1,155 2%Taxes (real estate, etc.) 1,000 2%Utilities 842 1.8%
% o
f Tot
al
Rev
enue
Dec
08
Act
ual
20© 2009 Wright Business Institute, Inc.
Actuals to Budget
Dec
08
Act
uals
Dec
08
Bud
get
$ va
rian
ce
%
Revenue (Sales)
Consulting 20,451 25,000 (4,549) -18%Products 26,444 25,000 1,444 6%Open CategoryTotal Revenue (Sales) 46,895 50,000 (3,105) -6%
Cost of Sales & Delivery
Sales Commissions 4,298 5,000 702 14%Delivery Costs 16,567 15,000 (1,567) -10%Open CategoryTotal Cost of Sales & Delivery 20,865 20,000 (865) -4%
Gross Profit 26,030 30,000 (3,970) -13%
Fixed Expenses
Payroll 5,104 5,000 (104) -2%Outside services 6,532 5,000 (1,532) -31%Rent 4,875 5,000 125 3%Supplies 1,155 1,500 345 23%Taxes (real estate, etc.) 1,000 1,000 0 0%Utilities 842 700 (142) -20%Advertising 288 500 212 42%
21© 2009 Wright Business Institute, Inc.
Comparison to Previous Year
Dec
08
Act
uals
Dec
07
Act
uals
$ va
rian
ce
%
Revenue (Sales)
Consulting 20,451 23,677 (3,226) -14%Products 26,444 25,678 766 3%Open CategoryTotal Revenue (Sales) 46,895 49,355 (2,460) -5%
Cost of Sales & Delivery
Sales Commissions 4,298 4,067 (231) -6%Delivery Costs 16,567 17,888 1,321 7%Open CategoryTotal Cost of Sales & Delivery 20,865 21,955 1,090 5%
Gross Profit 26,030 27,400 (1,370) -5%
Fixed Expenses
Payroll 5,104 4,864 (240) -5%Outside services 6,532 7,335 803 11%Rent 4,875 4,875 0 0%Supplies 1,155 1,289 134 10%Taxes (real estate, etc.) 1,000 900 (100) -11%Utilities 842 902 60 7%Advertising 288 401 113 28%
22© 2009 Wright Business Institute, Inc.
Paying Yourself
Cost of Sales & Delivery
Sales Commissions 4,298 Delivery Costs 16,567 Open CategoryTotal Cost of Sales & Delivery 20,865
Your Sales Commission
Fixed Expenses
Payroll 5,104 Outside services 6,532 Rent 4,875 Supplies 1,155 Taxes (real estate, etc.) 1,000 Utilities 842
Acme CompanyProfit & Loss StatementFor Month Ended December 31, 2008
Revenue (Sales) 46,895
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses 21,011
Net Profit 5,019
23© 2009 Wright Business Institute, Inc.
Paying Yourself
Cost of Sales & Delivery
Sales Commissions 4,298 Delivery Costs 16,567 Open CategoryTotal Cost of Sales & Delivery 20,865
Your Sales Commission
Fixed Expenses
Payroll 5,104 Outside services 6,532 Rent 4,875 Supplies 1,155 Taxes (real estate, etc.) 1,000 Utilities 842
Your Pay for Delivery
Acme CompanyProfit & Loss StatementFor Month Ended December 31, 2008
Revenue (Sales) 46,895
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses 21,011
Net Profit 5,019
24© 2009 Wright Business Institute, Inc.
Paying Yourself
Cost of Sales & Delivery
Sales Commissions 4,298 Delivery Costs 16,567 Open CategoryTotal Cost of Sales & Delivery 20,865
Your Sales Commission
Fixed Expenses
Payroll 5,104 Outside services 6,532 Rent 4,875 Supplies 1,155 Taxes (real estate, etc.) 1,000 Utilities 842
Your Pay for Delivery
Your Administrative
Salary
Acme CompanyProfit & Loss StatementFor Month Ended December 31, 2008
Revenue (Sales) 46,895
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses 21,011
Net Profit 5,019
25© 2009 Wright Business Institute, Inc.
Paying Yourself
Cost of Sales & Delivery
Sales Commissions 4,298 Delivery Costs 16,567 Open CategoryTotal Cost of Sales & Delivery 20,865
Your Sales Commission
Fixed Expenses
Payroll 5,104 Outside services 6,532 Rent 4,875 Supplies 1,155 Taxes (real estate, etc.) 1,000 Utilities 842
Your Pay for Delivery
Your Administrative
Salary
Acme CompanyProfit & Loss StatementFor Month Ended December 31, 2008
Revenue (Sales) 46,895
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses 21,011
Net Profit 5,019
Your Profit
26© 2009 Wright Business Institute, Inc.
The Three Musts in Constructing Your General Ledger
1. Record your sales and pay yourself a commission as a salesperson.
27© 2009 Wright Business Institute, Inc.
The Three Musts in Constructing Your General Ledger
1. Record your sales and pay yourself a commission as a salesperson.
2. Record your personal delivery hours and wages and pay yourself as you would any delivery person.
28© 2009 Wright Business Institute, Inc.
The Three Musts in Constructing Your General Ledger
1. Record your sales and pay yourself a commission as a salesperson.
2. Record your personal delivery hours and wages and pay yourself as you would any delivery person.
3. Pay yourself as an administrator.
29© 2009 Wright Business Institute, Inc.
The Three Musts in Constructing Your General Ledger
1. Record your sales and pay yourself a commission as a salesperson.
2. Record your personal delivery hours and wages and pay yourself as you would any delivery person.
3. Pay yourself as an administrator.
► Identify profit and loss—even if you choose not to pay yourself all you “earned.”
30© 2009 Wright Business Institute, Inc.
The Three Musts in Constructing Your General Ledger
1. Record your sales and pay yourself a commission as a salesperson.
2. Record your personal delivery hours and wages and pay yourself as you would any delivery person.
3. Pay yourself as an administrator.
► Identify profit and loss—even if you choose not to pay yourself all you “earned.”
► Distinguish profit from salary.
31© 2009 Wright Business Institute, Inc.
► What is the first thing you look at and why?
Reading Your Profit and Loss Statement
32© 2009 Wright Business Institute, Inc.
► What is the first thing you look at and why?
► What is the second thing you look at and why?
Reading Your Profit and Loss Statement
33© 2009 Wright Business Institute, Inc.
► What is the first thing you look at and why?
► What is the second thing you look at and why?
► What are the three most important lines on your P&L?
Reading Your Profit and Loss Statement
34© 2009 Wright Business Institute, Inc.
► What is the first thing you look at and why?
► What is the second thing you look at and why?
► What are the three most important lines on your P&L?
► How do you use your P&L to analyze apparent successes and problems?
Reading Your Profit and Loss Statement
35© 2009 Wright Business Institute, Inc.
► What is the first thing you look at and why?
► What is the second thing you look at and why?
► What are the three most important lines on your P&L?
► How do you use your P&L to analyze apparent successes and problems?
► How do you use your P&L to plan?
Reading Your Profit and Loss Statement
36© 2009 Wright Business Institute, Inc.
► What is the first thing you look at and why?
► What is the second thing you look at and why?
► What are the three most important lines on your P&L?
► How do you use your P&L to analyze apparent successes and problems?
► How do you use your P&L to plan?
► What is the most important line in your P&L to drive your business day-to-day?
Reading Your Profit and Loss Statement
37© 2009 Wright Business Institute, Inc.
The Map – Overview and Review
Level 1
Level 2
Level 3
Level 4
Level 5
Level 6
Initiating
Establishing
Emerging
Differentiating
Generating
Self-Developing
38© 2009 Wright Business Institute, Inc.
Initiating – Financial Overview
Level 1 Initiating
Level 2 Establishing
Level 3 Emerging
Level 4 Differentiating
Level 5 Generating
Level 6 Self-Developing
• No P&L• Don’t know how to use it• Think money you get is profit• Irregular pay--generally just write
checks as needed• You are the bookkeeper.• Financing with
• SBA loan• Savings• Credit card• Family loans• Family investments
39© 2009 Wright Business Institute, Inc.
Establishing – Financial Overview
Level 1 Initiating
Level 2 Establishing
Level 3 Emerging
Level 4 Differentiating
Level 5 Generating
Level 6 Self-Developing
• May have P&L• Still don’t know how to use your P&L• Still don’t trust numbers • Just learning to read P&L• Use P&L a little• Still think money you pay yourself is
profit• Cash flow is beginning to be a
challenge.• Either you are the bookkeeper or you
have a part time one• Financing with savings and credit cards• You need to guarantee loans, if any,
personally.
40© 2009 Wright Business Institute, Inc.
Emerging – Financial Overview
Level 1 Initiating
Level 2 Establishing
Level 3 Emerging
Level 4 Differentiating
Level 5 Generating
Level 6 Self-Developing
• P&L and basic finance in place• Learning to read and use P&L• Cash flow is a challenge for many,
especially service businesses.• Banks will now pay attention to you.• You are on a first name basis with your
banker.• Using line of credit to finance.• You are moving toward a full time
bookkeeper.• You still need to guarantee loans
personally.
41© 2009 Wright Business Institute, Inc.
Differentiating – Financial Overview
Level 1 Initiating
Level 2 Establishing
Level 3 Emerging
Level 4 Differentiating
Level 5 Generating
Level 6 Self-Developing
• Your bookkeeping is useful in analyzing your business.
• If you haven’t begun budgeting yet, you find the need to project and allocate because you have too many variables going to just deal with things as needed.
• You are now more attractive to all kinds of investors.
• You are developing your financial systems for scalability
• You likely have a full time bookkeeper.• You probably still guarantee loans
personally.
42© 2009 Wright Business Institute, Inc.
Generating – Financial Overview
ThisLevel 1 Initiating
Level 2 Establishing
Level 3 Emerging
Level 4 Differentiating
Level 5 Generating
Level 6 Self-Developing
• You have an accounting staff.• You may finance major moves rather
than using your own capital.• You no longer need to guarantee loans
yourself.• Your compensation systems are
beginning to be very focused.• You may be considering going public, if
you are not committed to staying private.
43© 2009 Wright Business Institute, Inc.
Generating – Financial Overview
ThisLevel 1 Initiating
Level 2 Establishing
Level 3 Emerging
Level 4 Differentiating
Level 5 Generating
Level 6 Self-
Developing
• You use the full range of financing.• You have systems of accountability that
support the company mission• Your systems of reward maximize
performance• You consider going public (IPO).
44© 2009 Wright Business Institute, Inc.
► Microloans
► SBA loans
► Franchise financing
► Developmental financing with SBA 504 loans
► Import/export loans
► Bank financing
Small Business Financing
45© 2009 Wright Business Institute, Inc.
► Angel Investors
► Venture Capital
► Investment Bankers
► Leasing
► Sell Stock (IPO)
► Merge
Other Financing