Management by Measurement

2009 BUSINESS BY THE NUMBERS SERIES Monthly Webinars geared toward helping businesses succeed in the new economy COST: ~Bassett clients FREE ~Monthly $29/month or $275/year JOIN OUR Online MEETUP GROUP for announcements and instructions

Today’s Agenda  Financial Statements  Using Your Accounting Software as a Management Tool  Financial Ratios  Key Performance Indicators (KPIs)  Your “Smart Number”

Financial Statements  Balance Sheet  Income Statement (P&L)  Cash Flow Statement

Understanding Financials Gross RevenueGross ProfitNET Profit WHAT ARE YOUR REAL COST OF GOOD SOLD? (COGS) Service Businesses - PRIME COSTS PRIME COST TRACKER EXAMPLES: Before & After

Balance Sheet  Snapshot of what you own and what you owe.  Assets = Liabilities + Net Worth

Income Statement  Shows revenues (sales) and expenses over a period of time.  Important to focus on Gross Profit and Margins (not just net income).

Income Statement  Cost of Goods Sold (COGS) = all direct costs of providing a product or service.  Gross Profit = Sales – COGS  Gross Profit % = Gross Profit / Sales  Breakeven = Fixed Costs / GP%

Cash Flow Statement  Most important financial statement because cash is king!  Measures cash flow from 3 activities  Operations  Financing  Investing

Bad Income and Expense Statement

Bad Income and Expense Statement (cont.)

Good P&L

P&L - Current Year Versus Prior Year

Important Financial Ratios 1. Gross Profit % (EBIDA) 2. Break Even Analysis – B/E=FC/GP% IMPORTANT TOWARD GOAL SETTING Example – BOTTOM UP PLANNING “Paying for Growth”

Liquidity Ratios

Profitability Ratios

Solvency Ratios

Efficiency Ratios

III - PREDICTORS, CRITICAL NUMBERS AND SMART NUMBERS Historical Financial statements Predicting cash flow CRITICAL #s defined SMART #s defined (Rockefeller)

CASH FLOW – LESS STRESS Paying for Growth EXIT Price

PREDICTORS, CRITICAL NUMBERS AND SMART NUMBERS SMART NUMBERS Non accounting smart numbers

SMART NUMBERS LEADS/SALES UTILIZATION REV/HR REV/FTE BACKLOG EXAMPLES AND WHY

IV. SMART NUMBERS Dashboards Scoreboards KPI’s CFO Reports

Why Morale 1. Cash Flow – Less Stress 2. Paying for Growth 3. Exit Price

Game of “Work” Don’t regurgitate P&L GAME OF WORK WHO IS ACCOUNTABLE?

Reason for Dashboard Reports STOP managing by assumptions, subjective opinions, emotions and egos. Allows you to take the pulse of your business consistently & accurately Provides enough info to take effective action steps (TRACTION )

MEASURABLES “What get measured gets done” Accountable people appreciate numbers Numbers create competition Numbers produce results Numbers create teamwork “My accountant has that information” is not an excuse (The Knack)

Magic Numbers Keep track of monthly sales & gross margins by hand Everyone assumes “not enough sales” 4 ways to deal with “lack of sales” Raise prices Reduce cost Turn down low margin jobs Find products/services with higher margins Alexander Sec Story High gross margins translate into high gross profit ~ main source of cash (The Knack)

Levers of Control New Boxes Key numbers ~ Backlog Alexander Powell “If you track sales, you can get into serious trouble SALES DON’T MAKE A COMPANY SUCCESSFUL PROFITS AND CASH FLOW DO (The Knack)

PAYING FOR GROWTH Growth doesn’t mean cash flow How to plan for growth BOTTOM LINE POINTS Track monthly

V. Using it Living it Alignment Track progress

Resources Recommended Reading: 4 books Bassett and Associates, PA website and our new “Insiders” Business by the Numbers” Meetup group Redline website