This workshop designed to help YOU and your business. It will require your active participation during three formal sessions plus significant additional outside work. You will be required to work with a SCORE Mentor in the workshops and in completing necessary homework. If requirements and participation do not fit with your expectations, do not enroll so others may participate. WELCOME

Confidentiality To make the workshop more effective you will be Utilizing your own business information with your SCORE mentor. Keep this in mind as you make presentations during The workshop sessions.

Formal Schedule Reading and planning preparation prior to 1 st session First Formal Session hours. Scheduled Homework with SCORE Mentor. Second Formal Session hours to create and implement a formal plan for your business. Follow up counseling with SCORE Mentor Third Formal Session days later to review and test how well YOUR plan is working.

Make sure you are willing to Commit to the entire workshop. Your SCORE Mentor is there to assist you In understanding and interpreting Information you learn. You are the one who will actually be doing the homework. YOUR COMMITMENT

Financial Management The benefit is to help you learn to better manage your business. To provide tools and information important to both grow and enhance profitability of business. To understand where money comes from and how it is utilized in your business.

Trusted Advisors They help you manage your business. Accountant / CPA Attorney Banker Insurance Agent SCORE Mentor

Workshop designed to help in following areas Create effective relationships with your trusted advisor team. Measure your company’s financial health (and yours). Understand basics of Cost Accounting Management of Business Risks and Cash. Cash Flow Forecasting and Budgeting.

Using Financial Information Your accounting system must: Conform to generally accepted accounting principles. Is needed in dealing with outsiders – Banks, IRS, etc. Understanding why standard methodology is important.

Bookkeeping methods Cash – recognizes income and expense at time received or paid. Accrual – recognizes income or expense at other times. Combination – Use of both Cash and Accrual.

3 Key Financial Statements You need to know and have Cast Flow Statement (The Money) Income Statement (Profit – Loss) Balance Sheet (Business Overview)

Other Financial Statements Accounts Receivable, Days Sales Outstanding, Aging Analysis, Delinquent Accounts Collection Policy Accounts Payable – Cash Requirements Payables days outstanding Purchasing Terms Allocation of expenses (Important for Daily Controls)

Utilizing information for Business Plan Balance Sheet -A snapshot of where you are. Cash Flow Projections -Where you need to be!

Cash Flow Model (Projections) Shows inflow and outflow of cash for a period of time. Indicates increase or decrease in available cash. Most Important Allows for planning of cash needs.

How to Use Probabilities Month 1 Sales Estimates Possible Outcomes# of UnitsWeightWeighted ValueReason Optimistic Case27540%110Less Uncertainty Target (Best Estimate)25050%125Historical Data Downside Case22510%22.5More or Less Competition 100%257.5Est. Units Note: Weight of all three Possibilities must add up to 100%. To Determine Realistic Projections For Cash Flow

How to Estimate Sales Target - (Market Segment)Channel Prod/Svcs CodeDel. Date# of Contacts* Response Rate** Close Rate Avg Gross $/Sale# of Sales Sales Totals % of Total Sales Direct/E- MailMonth 11, %10.00%$120100$12, % Personal ContactMonth %50.00%$ $ % Internet (Website)Month 12, %15.00%$ $ % Walk-ins Month %75.00%$120150$18, % Totals/AverageMonth 13, %37.50%$ $30, % Annually 12 mos/yr3090$370,800 * - Response indicates at least an inquiry into Product or Service types, amounts, terms or conditions. ** - Close is an actual qualified buyer that follows thru with a purchase from this marketing effort. (Alternate Method)

Cash Flow Revenue Projections

Cash Flow Operating Exp. Projections OPERATING EXPENSES (Description)Month 1Month 2 (a) Purchases (Merchandise, Inventory, Raw Materials) $ 11,798 $ 14,039 (b) Gross Wages (excludes withdrawals) $ 7,500 $ 8,500 (c) Payroll Expenses (Taxes, Benefits, etc.) $ 2,625 $ 2,975 (d) Outside Services $ 100 (e) Supplies (Office and operating) $ 100 (f) Repairs and Maintenance $ 500 (g) Advertising $ 1,500 $ 2,000 (h) Auto, Delivery, and Travel $ 150 (i) Accounting and Legal $ - (j) Rent $ 1,500 (k) Telephone $ 250 (l) Utilities $ 500 (m) Insurance $ 200 (n) Taxes (Real Estate, etc.) $ - (o) Interest on LOC $ - (p) Other Expenses [Specify each] $ 500 (q) Miscellaneous [Unspecified] $ - (r) Subtotal $ 27,223 $ 31,314

Cash Flow Financial Projections

Example Cash Flow Projections Monthly Cash Flow Projection Enter Company Name Here Enter Date Here Month 1Month 2Month 3Month 4Month 5Month 6Month 7Month 8Month 9Month 10Month 11Month 12 TOTAL 1. CASH ON HAND [Beginning of month] $10,000 $ 9,272 $10,055 $ 9,298 $ 8,879 $ 5,830 $ 2,151 $ (912) $ (1,710) $ (63) $ 4,357 $ 8, CASH RECEIPTS (a)Sales (45% of Sales) $12,500 $13,875 $14,290 $15,750 $ 16,785 $ 17,525 $ 18,525 $ 17,650 $ 17,325 $ 16,350 $ 15,675 $ 13, ,500 (b) Collections from Credit Accounts (55% of Previous Mo Sales) $16,995 $16,222 $19,303 $19,851 $ 21,231 $ 20,909 $ 21,139 $ 21,815 $ 21,706 $ 21,467 $ 22,174 $ 20, ,629 (c) Loan or Other Cash Injection $ - $ 5,000 $ 2,500 $ 3,000 $ - $ 2,500 13, TOTAL CASH RECEIPTS [2a + 2b + 2c=3] $29,495 $35,097 $36,093 $38,601 $ 38,016 $ 38,434 $ 39,664 $ 39,465 $ 39,031 $ 40,317 $ 37,849 $ 34, , TOTAL CASH AVAILABLE [Before cash out] (1 + 3) $39,495 $44,369 $46,149 $47,900 $ 46,895 $ 44,263 $ 41,815 $ 38,553 $ 37,321 $ 40,254 $ 42,206 $ 42, CASH PAID OUT (a) Purchases (Merchandise, Inventory, Raw Materials) $11,798 $14,039 $16,242 $17,371 $ 19,008 $ 19,217 $ 19,832 $ 18,943 $ 17,564 $ 16,127 $ 15,140 $ 15, ,610 (b) Gross Wages (excludes withdrawals) $ 7,500 $ 8,500 $ 9,000 $ 9,250 $ 9,500 $ 8,000 $ 7, ,750 (c) Payroll Expenses (Taxes, Benefits, etc.) $ 2,625 $ 2,975 $ 3,150 $ 3,238 $ 3,325 $ 2,800 $ 2,625 35,263 (d) Outside Services $ 100 1,200 (e) Supplies (Office and operating) $ 100 1,200 (f) Repairs and Maintenance $ 500 6,000 (g) Advertising $ 1,500 $ 2,000 $ 2,250 $ 2,500 $ 2,000 $ 1,500 25,750 (h) Auto, Delivery, and Travel $ 150 $ 200 $ 300 $ 350 $ 300 $ 250 $ 200 $ 150 3,050 (i) Accounting and Legal $ - - (j) Rent $ 1,500 18,000 (k) Telephone $ 250 3,000 (l) Utilities $ 500 6,000 (m) Insurance $ 200 2,400 (n) Taxes (Real Estate, etc.) $ - - (o) Interest on LOC $ - $ $ $ $ (p) Other Expenses [Specify each] $ 500 6,000 - (q) Miscellaneous [Unspecified] - (r) Subtotal $27,223 $31,314 $33,850 $36,021 $ 38,065 $ 38,612 $ 39,227 $ 36,263 $ 34,384 $ 32,897 $ 31,201 $ 30, ,899 (s) Loan Principal Payment - (t) Capital Purchases [Specify] - (u) Other Start-up Costs - (v) Reserve and/or Escrow [Specify] - (w) Owner's Withdrawal $ 3,000 $ 3,500 $ 4,000 $ 3,000 38, TOTAL CASH PAID OUT [Total 5a thru 5w] $30,223 $34,314 $36,850 $39,021 $ 41,065 $ 42,112 $ 42,727 $ 40,263 $ 37,384 $ 35,897 $ 34,201 $ 33, , CASH POSITION [End of month] (4 minus 6) $ 9,272 $10,055 $ 9,298 $ 8,879 $ 5,830 $ 2,151 $ (912) $ (1,710) $ (63) $ 4,357 $ 8,005 $ 8,230

Cash Flow Template Monthly Cash Flow Projection Enter Company Name Here Enter Date Here Month 1Month 2Month 3Month 4Month 5Month 6Month 7Month 8Month 9Month 10Month 11Month 12 TOTAL 1. CASH ON HAND [Beginning of month] $ - 2. CASH RECEIPTS (a)Sales (45% of Sales) $ - - (b) Collections from Credit Accounts (55% of Previous Mo Sales) $ - - (c) Loan or Other Cash Injection $ TOTAL CASH RECEIPTS [2a + 2b + 2c=3] $ TOTAL CASH AVAILABLE [Before cash out] (1 + 3) $ - 5. CASH PAID OUT (a) Purchases (Merchandise, Inventory, Raw Materials) $ - - (b) Gross Wages (excludes withdrawals) $ - - (c) Payroll Expenses (Taxes, Benefits, etc.) $ - - (d) Outside Services $ - - (e) Supplies (Office and operating) $ - - (f) Repairs and Maintenance $ - - (g) Advertising $ - - (h) Auto, Delivery, and Travel $ - - (i) Accounting and Legal $ - - (j) Rent $ - - (k) Telephone $ - - (l) Utilities $ - - (m) Insurance $ - - (n) Taxes (Real Estate, etc.) $ - - (o) Interest on LOC $ - - (p) Other Expenses [Specify each] $ (q) Miscellaneous [Unspecified] - (r) Subtotal $ - - (s) Loan Principal Payment - (t) Capital Purchases [Specify] - (u) Other Start-up Costs - (v) Reserve and/or Escrow [Specify] - (w) Owner's Withdrawal $ TOTAL CASH PAID OUT [Total 5a thru 5w] $ CASH POSITION [End of month] (4 minus 6) $ -

Incoming Revenue Less Adjustments Minus Cost of Goods Shows Gross Profit Minus -Outgoing Expenses Various Expense Categories Equals Net Operating Income Income Statement

Example Income Statement INCOME STATEMENT (in thousands) Sales Revenue$1,500$1,550$1,700 Less: Cost of Goods Sold$1,000$1,030$1,040 Gross Profits$500$520$660 Less: Operating Expenses: Selling Expense$140$150$155 General / Admin. Exp.$260$270$275 Lease Expense$5$0$2 Depreciation Expense$10$11$12 Total Operating Expenses$415$431$444 Operating Profits$85$89$216 Less: Interest Expense$23$29$30 Net Profits Before Taxes$62$60$186 Less: Taxes$10$12$15 Net Profit After Taxes$52$48$171

Income Statement Template INCOME STATEMENT (in thousands) Sales Revenue Less: Cost of Goods Sold Gross Profits Less: Operating Expenses: Selling Expense General / Admin. Exp. Lease Expense Depreciation Expense Total Operating Expenses Operating Profits Less: Interest Expense Net Profits Before Taxes Less: Taxes Net Profit After Taxes

Balance Sheet Assets Current + Long Term Total Assets Liabilities Current + Long Term Total Liabilities Equity The difference between the Total Assets and the Total Liabilities Total Equity Total Assets = Total Liabilities + Total Equity

Example Balance Sheet

Balance Sheet Template BALANCE SHEET ($000) Current Assets: Cash Accounts Receivable Inventories Total Current Assets$0 Gross Fixed Assets (at cost): Land & Buildings Machinery and Equipment Furniture & Fixtures Vehicles Other (Inc. Fin. Leases) Total Gross Fixed Assets$0 Less: Accumulated Depreciation Net Fixed Assets$0 Other Assets$0 Total Assets$0 Current Liabilities: Accounts Payable Notes Payable Taxes Payable Other Current Liabilities Total Current Liabilities$0 L / T Debt (Inc. Financial Leases) Total Liabilities$0 Common Stock Paid-In Capital In Excess of Par Retained Earnings Total Stockholders' Equity$0 Total Liabs. & Stockhldrs' Equity $0

Utilizing information for Business Plan Balance Sheet -A snapshot of where you are. Cash Flow Projections -Where you need to be!

15 minute BREAK Work with your SCORE Mentor

Financial Ratios Various ratios are available to help you compare where you stand with your plan and how. You can compare your plan with others in similar business ventures. Your SCORE Mentor can help you understand where comparative data is available.

RATIO ANALYSIS Current Ratio Quick Ratio Inventory Turnover Average Collection Period Fixed Asset Turnover Total Asset Turnover Debt Ratio Debt-to-Equity Times Interest Earned Gross Profit Margin33.33%33.55%38.82% Operating Profit Margin5.67%5.74%12.71% Net Profit Margin3.47%3.10%10.06% Return on Total Assets (ROA)10.61%8.68%29.43% Return on Equity (ROE)47.71%31.58%68.40% Earnings Per Share$0.10 $0.34 Price/Earnings Ratio Examples of Common Ratios

Current Ratio Current Assets divided by Current Liabilities. The higher the number the better.

To Clarify Definitions Current Assets Current Liabilities

Profitability Ratios Key areas where your actions will make change Gross Profit Margin Return on Assets Return on Equity

Gross Profit Margin Gross Sales - Cost of Goods Sold Gross Sales What is a realistic gross profit for your business? Consider Margins for Specific Products or Services you Offer!

A/R Days Outstanding Days of Inventory A/P Days Outstanding Effect of these on your business and Cash flow Efficiency Ratios Tie directly to Profitability of Your Business

Key Cost Accounting Terms Breakeven analysis General and Administrative expenses Depreciation

Making Changes to Improve Your business Increase Revenue -- Profitability Reduce Costs – Profitability Increase Productivity – Efficiencies Forecasting Models -- Projections (Sales – Cash Flow – Budget)

15 minute Working Break With your SCORE mentor

Assignment: Your Action Plan Review 1-3 year business history Set specific items to track bring a 12 month budget. Plan to share your work with the group. Schedule a tracking mechanism and use it Examples Reports – Dashboards Meet with Mentor to discuss plans and Come prepared to discuss at next session

Action Plan Item 1 Item 2 Item 3 Item 4 Item 5 Tracking will be Daily? Weekly? Monthly?

1 Develop Cash Flow Projection for 12 months 2 Possibly reduce inventory over 9 months 3 Model Employee Productivity 4 Determine Actual Profit Margins of (x) products 5 Have Fun Tracking will be Daily? Weekly? Monthly? Action Plan Example

Wrap Up Week 1 Do you understand assignment? Do you understand where needed info is? Do you have forms to fill out? Do you have an assigned Mentor? Have you worked out a schedule with Mentor?

Any Questions? Do you have necessary forms? Come prepared with Goals and Data

Next Session in 2 Weeks Basic Review of terminology Review your work – Specific Goals Develop forward Projections / Tracking Develop an Action Plan for Your Business Final meeting is 90 days from second session to review progress

To Review Your Plan Identify Success Stories Take Action on other items Redefine Goals and forward Projections Develop your Action Plan for the future Follow Up Session (90 days)