The importance of understanding the financials of your business

Introduction  Brian Koester, Owner and CEO of Better Walker.  Entrepreneur  13 years experience running and growing a seven figure pet service company.

How understanding my financials became important to me In 2000 I graduated with a degree in acting and began waiting tables In 2002 I couldn’t wait on another table and started a dog walking and pet sitting company The Company grew but my piece of mind did not. I came to a crossroad.

The Crossroads  Unclear on what my job should entail on a daily basis  20 employees dependent upon company for their welfare  Anxiety over payroll even though we were approaching 1M in revenue  Nobody in company with a business background

What Happened  Goldman Sachs 10,000 small business initiative

The Terrifying Questions  Is your business profitable?  What’s the profit margin on a dog walk?

You don’t know what you don’t know.

You’re Amazing  13% of Americans start their own business, so 87% of the population don’t  Half of those businesses will fail in first 3 years

Being Profitable does not take away from the love

Profit & Loss

Using financials to make decisions

How does this change things? I’m a professional pet sitter  Bonded and Insured  Know pet CPR  Educated in animal behavior  Taking seriously the care of animals as a profession I own a professional pet sitting company  Implies being a professional pet sitter AND understanding that you own an entity that has value.  Understanding what gives your business tangible value  Taking on the responsibility to run your business in a way that is rooted in sound business principles and adds to it’s value

The Life of a business ends in one of two ways.

Initial questions asked by investor looking to acquire pet sitting companies  STRUCTURAL / FINANCIAL  Is the staff W-2, 1099 or “fake” 1099 (cash under the table)?  Pay structure comparison? (i.e., how calculated, frequency, etc.)  Management salary included in SG&A expenses?  Licensed, bonded and insured? Review policies/costs.  CLIENT / ROUTE  Route density by staff?  Client contracts?  9 to 5 customer service or 24-hour expectation?  Two-key requirement?  STAFF  Has staff already undergone federal, state and local background checks?  Employment contracts on file for all staff?  Company has training manual? Reviewed?  Software platforms used by staff?

In order to place a value on your business you must understand your financials  Most small companies are valued using one or more of the following methods, all of which take into account the company's historical earning power(Financials):  DEBT PAYING ABILITY(If I take out a loan to buy your company how quickly can I pay that loan back using your profits)  CAPITALIZATION OF EARNINGS OR CASH FLOW(EBIT/buyers expected return on investment)  GROSS INCOME MULTIPLIERS (An industry multiplier applied to some aspect of your P&L)

Looking at our 10% rate increase again

Comparing Values after raising prices by 10% Before raising prices EBIT= $9,405 for 3months $9,405 x 4 = $37,620 annually Buyer wants 25% return on Investment $37,620 /.25 = $150,480 Value After raising prices 10%  EBIT = $14,045 for 3 months  $14,045 x 4 = $56,180 annually  Buyer wants 25% return on investment  $56,180 /.25 = $224,720 Value

THANK YOU! Brian Koester Owner/CEO Better Walker