How 3 simple metrics can help you evaluate and achieve your business goals

Numbers You Should Know

3Lunch N Learn

October 10, 2019

Presented by Client Treasury Services

Bryant Hall Client Treasury Services Officer, Downtown Office Bachelor of Science in Finance – University of Wyoming Managed a guest ranch and art casting foundry Enjoys climbing and hunting 307-577-3417 Bryant.Hall@Hilltop.Bank

Bryce True AVP Client Treasury Services Manager, Downtown Office Bachelor of Science in Business Administration Bachelor of Art in Fine Art – University of Colorado, Denver Wyoming Rescue Mission Chairman of the Board Enjoys fly-fishing and hunting 307-577-3405 Bryce.True@Hilltop.Bank

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THIS IS A DISCLAIMER!!!!This presentation is not legal advice. • We are NOT CPA’s • We are NOT TAX Attorney’s • We are NOT CERTIFIED for much more than State Mental Health

We believe this information will be beneficial to you and your business when you visit with your licensed professional.

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Today’s Agenda

During today’s presentation we will cover the following:

• Evaluating your business • Goal setting • The 3 numbers we think you should focus on • An illustration of how we can help • Questions and Answers

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Why is Evaluating Your Business Important and Necessary?

• Identify risks, problems and issues

• You don’t know what you don’t know

• Know health of your business

• Plan your strategies

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Barriers to Regularly Evaluating Your Business

Time Spending time running your business i.e. Operations

Time away from generating business

What to look at

How to do itKnowledge

Cost

Complexity

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Why defining and outlining your goals is critical for your business

You cannot define your strategy without defining & outlining your goals

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Defining your goals

To make money? To create a job? Grow your business? Sell your business? Retire? Pass to next generation? Crush your enemies?

What are your goals?

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IN A WORLD FULL OF METRICS 3 WILL RISE

Debt-to-Equity ROAGross Margin

Cost/Hire

Days’ Receivables Curren

t RatioOperating Cash Flow

CostPer Conversion

(CPC)

ROEProfit MarginCustomer

Acquisition Cost

ROI

Cash T/O

Quick Ratio

Net Equity

A/R Turnover

EPSInventory Turnover

Profit Margin

Operating Cash Flow

Net Equity

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Setting Strategic Targets to Reach

Your Goals

Profit Margin

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What is it?

Reasons you should know it?

Profit Margin aka Net Margin

Profit Margin = Net Income / Total Revenues Profit Margin measures profitability

Indicates how much profit is generated from each dollar of sales Higher efficiency can lead to higher profit margin Identify trends gross numbers miss

3

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An Illustration:Amy’s Winehouse

• Est. 2009 • Owner operated • (2) Part-time employees • Annual sales

$250,000 - $300,000

Amy’s Goals

• Increase net income to $2,500 • Build net equity to $50,000

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Amy’s Winehouse Monthly Income Statement

May-19 Jun-19 Jul-19 Aug-19Income Total Sales $19,954 $22,053 $30,799 $31,206

LessCOGS $10,011 $11,109 $16,133 $16,509 Gross Income $9,943 $10,944 $14,666 $14,697 Expenses Rent $1,655 $1,655 $1,655 $1,655 Insurance $250 $250 $250 $350 Utilities $415 $589 $978 $821 InterestExpense $141 $138 $134 $130 OtherExpenses $602 $656 $1,490 $1,037 WagesandTaxes $6,041 $6,797 $9,481 $9,559  SalesTaxExpense $998 $1,103 $1,540 $1,560Total Operating Expenses $9,104 $10,085 $13,988 $13,552

Net Income $839 $859 $678 $1,145

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Amy’s Winehouse

Total Sales/Gross Sales/Net Income

Net

Inco

me

$600

$1,700

$2,800

$3,900

$5,000

$0

$8,688

$17,375

$26,063

$34,750

May-23 Jun-23 Jul-23 Aug-23

Total Sales Gross Income Net Income13 / 40

Amy’s Winehouse Monthly Income Statement w/ Profit Margin

May-19 Jun-19 Jul-19 Aug-19Income Total Sales $19,954 $22,053 $30,799 $31,206

LessCOGS $10,011 $11,109 $16,133 $16,509Gross Income $9,943 $10,944 $14,666 $14,697 Expenses Rent $1,655 $1,655 $1,655 $1,655 Insurance $250 $250 $250 $350 Utilities $415 $589 $978 $821 InterestExpense $141 $138 $134 $130 OtherExpenses $602 $656 $1,490 $1,037 WagesandTaxes $6,041 $6,797 $9,481 $9,559  SalesTaxExpense $998 $1,103 $1,540 $1,560Total Operating Expenses $9,104 $10,085 $13,988 $13,552

Net Income $839 $859 $678 $1,145

Profit Margin 4.2% 3.9% 2.2% 3.7% 14/ 40

Aligning Profit Margin Targets To Your Goals

Maximize profits

Grow your business

Sell your business

Crush your enemies

> 3.5%

2.0% - 3.0%

3.0% - 4.0%

Open

Lower sales/growth

Lower profits

Difficult to balance sales/profits

Possible losses

If Amy’s Goal is to Her Profit Margin Targets Could be Set at

Her Costs and Challenges Could Be

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What are you including in your profit margin?

Are you getting paid?

How are you getting paid?

What does this say about your business?

Profit Margin Additional Considerations 16 / 40

What is your business worth?

Net Equity

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What is it?

Net Equity

Security and opportunity Business valuation Succession planning

AssetsLiabilitiesEquity

-Net Worth

Reasons you should know it?3

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Equity Ratios

Debt to Equity = Total Liabilities / Net Equity How much your business is leveraged Broad target to trend down

Return on Equity (ROE) = Net Income / Net Equity How much income your equity is earning you Broad target = 15 – 20%

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asof 5/31/2019 6/30/2019 7/31/2019 8/31/2019Assets Cash $8,149 $11,726 $10,338 $9,792 AccountsReceivable $9,721 $16,457 $18,231 $14,961 Inventory $18,156 $13,251 $16,873 $17,722

Total Assets $36,026 $41,434 $45,442 $42,475

Liabilities AccountsPayable $6,871 $12,110 $16,133 $12,718InterestPayable $134 $130 $127 $123

LongTermLiabilities NotesPayable $24,739 $24,053 $23,363 $22,670

Total Liabilities $31,744 $36,293 $39,623 $35,511     

Equity      RetainedEarnings $4,282 $5,141 $5,819 $6,964

Total Equity $4,282 $5,141 $5,819 $6,964

Total Liabilities and Equity $36,026 $41,434 $45,442 $42,475

Amy’s Winehouse

Monthly Balance Sheet

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Amy’s Equity Ratios

Deb

t-To

-Equ

ity

'-

2.50

5.00

7.50

10.00

RO

E

0.00%

6.50%

13.00%

19.50%

26.00%

6/1/2023 7/1/2023 8/1/2023 9/1/2023

ROE Debt-to-Equity

ROE 24.35% 20.05% 13.20% 19.69%

Debt-to-Equity 7.41 7.06 6.81 5.10

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General Guidelines

Increased leverage can increase risk can increase returns

Decreased leverage can decrease risk can decrease returns

Are you in a startup in growth mode?

Are you scaling up?

Are you planning to retire?

Aligning Equity Ratios to Your Goals

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Book Value Assets – Liabilities = Value (Net Equity)

How are you valuing your assets? Is it justified?

Income Approach Net Income x Multiple = Value

What is your multiple? Is it justified?

Net Equity Additional Considerations

Valuing your business

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Cash Creates Earnings

Operating Cash Flow

Earnings Do Not Create cash 24 / 40

Profit is an accounting concept

Cash Flow vs Profits

Cash is the amount in the checking account

You can have assets, like accounts receivable (money owed to you by customers) but if you can't collect on what's owed, you don’t have cash.

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What is it?

Operating Cash Flow (OCF)

OCF =

82% of businesses fail due to lack of adequate cash flow Business can be profitable w/o sufficient cash

Necessary to planning

Cash from sales – Cash paid for operating expenses

Reasons you should know it?3

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Sources/Uses of Cash

Sources of cash - Selling inventory - Collecting receivables (A/R) - Increases in accounts payable days Uses of cash - Purchasing inventory - Increases in accounts receivable days - Paying accounts payable

Increase cash on hand

Decrease cash on hand

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May-19 Jun-19 Jul-19 Aug-19Operating Activities

NetIncome $839 $859 $678 $1,145

AccountsReceivable -$970 -$6,736 -$1,774 $3,270Inventory -$3,905 $4,905 -$3,622 -$849AccountsPayable $2,719 $5,239 $4,023 -$3,415InterestPayable -$4 -$4 -$4 -$4

Cash Provided From Operations -$1,321 $4,263 -$699 $147

Investing Activities CashProvidedFromInvestingActivities $0 $0 $0 $0

Financing Activities NotePayable -$682 -$686 -$690 -$693

CashUsedByFinancingActivities -$682 -$686 -$690 -$693

Net Cash Increase (Decrease) -$2,003 $3,577 -$1,388 -$546

Amy’s Winehouse

Monthly Statement of Cash Flows

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Cash Flow ManagementKeep an eye out for stormy weather

Review your credit policies and customer credit history

Review your accounts payable and vendor terms

Prepare cash flow projections

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Operating Cash Flow Additional Considerations

Cash Flow Management Can Help You

Qualify for a Small Business Loan

Avoid Unexpected Shortfalls

Plan for the Future

Stay in Business

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How We Can Help

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We have a variety of digital and lending products to help improve efficiency, reduce costs and grow your business

▪Merchant Services

▪Automated Clearing House (ACH) ▪Merchant Source Capture (MSC)

▪Mobile Deposit

▪Online Banking

▪Analysis Checking

▪Commercial Line of Credit

Single Source Solution

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Merchant Services May-19 Jun-19 Jul-19 Aug-19Income Total Sales $19,954 $22,053 $30,799 $31,206

LessCOGS $10,011 $11,109 $16,133 $16,509Gross Income $9,943 $10,944 $14,666 $14,697 Expenses Rent $1,655 $1,655 $1,655 $1,655 Insurance $250 $250 $250 $350 Utilities $415 $589 $978 $821 InterestExpense $141 $138 $134 $130 OtherExpenses $602 $656 $1,490 $1,037 WagesandTaxes $6,041 $6,797 $9,481 $9,559  SalesTaxExpense $998 $1,103 $1,540 $1,560Total Operating Expenses $9,104 $10,085 $13,988 $13,552

Net Income $839 $859 $678 $1,145

Profit Margin 4.2% 3.9% 2.2% 3.7% 33 / 40

Merchant Services May-19 Jun-19 Jul-19 Aug-19

Other Expenses $602 $656 $1,490 $1,037MerchantServiceFees $489 $540 $755 $765PayrollProcessing $75 $75 $100 $100OfficeSupplies $38 $41 $388 $49Event $0 $0 $247 $123

MerchantServiceFeesAfterRateSavingsw/BASYS $377 $423 $541 $632

Monthly Savings $112 $118 $214 $133

Profitability Impact 0.56% 0.53% 0.70% 0.43%

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ACHACH can be used to save time and money

Scaled for your business ACH can: • Help reduce typical merchant service costs • Improve A/R turn times • Control A/P • Optimize Cash Management

▪ Payroll processing ▪ Vendor remittance ▪ Tax remittance ▪ Customer and invoice collection

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ACH May-19 Jun-19 Jul-19 Aug-19

Other Expenses $602 $656 $1,490 $1,037MerchantServiceFees $489 $540 $755 $765PayrollProcessing $75 $75 $100 $100OfficeSupplies $38 $41 $388 $49Event $0 $0 $247 $123

MerchantServiceFeesw/BASYS $377 $423 $541 $632LessSpecialtyEvents - - ($135) ($135)

LoweredPayrollProcessing $26 $26 $26 $26

Monthly Savings $112 $118 $349 $268

Profitability Impact 0.56% 0.53% 1.13% 0.86%36 / 40

Amy’s Winehouse Impacted Net Income / Profit Margin

0.0%

10.0%

$0

$375

$750

$1,125

$1,500

May-23 Jun-23 Jul-23 Aug-23

Original Net Incomew/Merchant Service Savingsw/ACH SavingsProfit MarginSeries54.8%4.4%3.3%4.5%

4.8%4.4%

3.3%

4.5%4.2%

3.9%

2.2%

3.7%

950.2844 976.1241027.4776

1413.0785

838.542 858.5815

678.4245

1145.453

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Mobile Deposit/MSC

Mobile Deposit and Merchant Source Capture (MSC) can help save time and money.

Deposits from your office, store and other commercial location, on your own time and terms

▪ MSC utilizes a check scanner at your location ▪ Mobile deposit captures check images on your mobile device ▪ Both eliminate travel and weather concerns

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Commercial Lending

We have a variety of commercial loan products to meet your businesses growing needs

▪Business Advantage Line of Credit ▪Term Loans

▪Agricultural Loans

▪Construction Loans ▪Lease Financing ▪Letters of Credit

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We can help make your banking more efficient and cost effective, so you can focus on what matters to you.

Banking shouldn’t be your focus Business should be your focus

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