Course Title Presented by Alan Friedman & Daniel Jobe Friedman, Kannenberg & Company, P.C.

“Dissect” a Financial Statement (Balance Sheet & Income Statement) Teach you “how to read” a F/S “Q&A” along the way OBJECTIVES

What does “F.S.” stand for? This is the type of scaling used on a bass guitar…. “Full Scale” Financial terminology test…

What does “I.S.” stand for? It’s what comes on every keyboard… “Internal Sounds” Financial terminology test…

Finally, what is BS? That’s right…a balance sheet Financial terminology test…

Balance Sheet Income Statement (a.k.a. “P&L”) Statement of Cash Flows Supporting Schedules (i.e. oper. expenses) Footnotes CPA firm letter (compilation, review, audit) What’s a “financial statement”?

The “Balance Sheet”

The “Income Statement”

Current Assets Fixed Assets Rental Assets Other Assets Dissecting a “balance sheet” Current Liabilities Long-term Liabilities Related party debt Owner’s Equity

Primary Operating Income (i.e. sales) Secondary Oper. Income (i.e. rentals, lessons, repairs, tuning & delivery) Operating Expenses (a.k.a. “SG&A”) Other (non-oper.) Expenses & Taxes Net Income (a.k.a. “the bottom line”) Dissecting an “Income Statement”

(1) Liquidity (2) Debt Structure (3) Owner’s Investment in the Business (a.k.a. “Net Worth”) What does a “balance sheet” tell us?

(4) Profitability by Revenue Activity (5) Excessive Operating Expenses (6) Overall Profitability (a.k.a. the “bottom line”) for the Period What does an “income statement” tell us?

(7) Inventory management effectiveness (8) Return on rental pool investment (9) Ability to service company’s debt What do they tell us “together”?

“Your Current Ratio is one of the most important metrics a bank considers when deciding whether to lend you money and in what form.” #1 – Current Ratio = Liquidity

Most bankers want to see a “Current Ratio” of 2.00 to 1.00 or better!

“A lack of long-term financing is like being a one-man band – you’re carrying a heavy load all by yourself which limits what you can do.” #2 – Debt Structure

“Your employees, bankers & suppliers all think your profits are like an Alan Friedman guitar solo… unending”. Item #3 – Owner’s Equity

“ Bankers like to see how much money an owner has invested in their business…or if the bank is merely funding an extravagant lifestyle (or even another business) of the owner! ”.

“The biggest income statement blunder made by retailers and their accountants is lumping “ all ” revenues into sales.” #4 – Profitability by Activity

Knucklehead Music, Inc.

#5 – Managing Operating Expenses “Manage expenses at their most basic level, then review them as a “percentage of sales” to make sure you are in- line with industry averages.”

#5 – Managing Operating Expenses

“Sales, rentals, lessons, repairs and every related operating expense need to be managed to deliver both a profitable bottom line and a greater chance of staying in business.” #6 – Net Income (the bottom line)

“Is a tornado the only way for you to get rid of your aging inventory?” #7 – Inventory Management

Most retailing experts (across all industries) suggest a GMROI target of $1.50 or better #7 – Inventory Management

“Not managing your Rental Pools is like having a tent sale with a bunch of drummers playing drum solos all at the same time.” #8 – Return on your Rental Pool

This formula tells you how long it takes to recover the cost you’ve invested in your rental instrument pool (12 months divided by.75 = 16 months)

#9 – Debt Service Coverage “While you may be profitable, you could still be crushed under the weight of poor cash flow and a burdensome debt service!!”

#9 – Debt Service Coverage Most bankers like to see at least a 1.5 debt service coverage ratio!

…of not generating and acting upon monthly financial statements – it’s by far your company’s “most vital” financial health report!! Don’t fall into the trap…

Need some help? Contact Jen Lowe after this seminar to set up a meeting time during the show

Any Questions?

“ Printz” Saturday Night – Hilton 10:00pm “ Enjoy the Show!”