Budgeting in Tough Times: A Key Business Tool Moderator: Arthur Sanders, CPA Senior Partner: Israeloff, Trattner & Co.

Cash Flow Budgets How to Use this Effective Planning Tool Presented by: Michael Buoncore, CPA – CFO Posillico Civil, Inc.

Cash is KING

Operating vs. Cash Flow Budgets What’s the difference? Operating Budget – A detailed projection of all estimated income and expenses based on forecasted sales for a given period. The operating budget focuses only on the components of the Income Statement. Cash Flow Budget – A detailed estimate of the timing of cash inflows and outflows over a given period. The cash flow budget focuses on the sources and uses of cash, which includes components of both the Income Statement and Balance Sheet.

Cash Flow Budgets Statement of Cash Flows Significant Sources of Cash Cash sales Collection of accounts receivable Loan proceeds Sales of FF&E Capital contributions Significant Uses of Cash Cash expenses Payment of accounts payable Loan repayments Purchases of FF&E Distributions / dividends Purchases of inventory/raw materials

Cash Flow Budgets Items to Improve Collections Be selective in choosing customers (KYC to CYA) Use credit application D&B report analysis References (new, established and lost) Better Business Bureau Know your customer’s accounts payable process Flowchart their payment process Payment cutoff dates Personnel in process Accept credit/debit cards Negotiate discounts for faster payment

Cash Flow Budgets Items to Improve Payments Offer discounts for early payment Set specific day(s) that you cut checks Keep the process in line with industry benchmarks Eliminate late charges & penalties Don’t pay vendors early due to personal relationships Wherever possible, match vendor payments with related cash collections

Cash Flow Budgets The Pains of Growth WeekMonth 1Month 2Month 3Month 4 NumberCostsBillingsCash inNet cashCostsBillingsCash inNet cashCostsBillingsCash inNet cashCostsBillingsCash inNet cash 1 (1,350) ,715 (1,350) 7,715 (1,350) 7,715 6,365 (1,350) 7,715 6,365 Monthly (5,400) 7,715 - (5,400) 7,715 - (5,400) 7,715 2,315 (5,400) 7,715 2,315 Cumulative (5,400) (10,800) (8,485) (6,170) Mth 1YTD Mth 2YTD Mth 3YTD Mth 4YTD Revenue 7,715 15,430 7,715 23,145 7,715 30,860 Cost of sales 5,400 10,800 5,400 16,200 5,400 21,600 Gross profit 2,315 4,630 2,315 6,945 2,315 9,260 Overhead 675 1, , ,700 Profit 1,640 3,280 1,640 4,920 1,640 6,560 21% Assumptions: Salary: $1,000/wk; Benefits: $350/wk (35%); Profit Margin: 30%; Overhead Costs: $675/month; Client pays in 60 days

Cash Flow Budgets How Does the Bank Fit In? Your bank is not a vendor, but an critical partner in the cash flow equation. Debt options –Line of credit (fund working capital) –Fixed rate term debt (long term purchases) –Variable rate term debt (long term purchases) –Leases

Cash Flow Budgets Measurement Tools Every company is leveraged A/P, Accrued expenses, Formal debt, commitments Working Capital (current assets – current liabilities) Current Ratio (current assets/current liabilities) Acid Test (Liquid) Ratio (Cash, A/R & investments/current liabilities) Days Cash (cash/daily cash expenses) Days Sales Outstanding (A/R / daily sales) Days Payable Outstanding (A/P / daily expenses)

OPERATING BUDGETS IT IS HOW YOUR BUSINESS RUNS Presented by: Marc P Palker, CMA Managing Director-Madison Davis Professional Services, LLC

HOW IMPORTANT ARE BUDGETS? They make you think ahead

HOW IMPORTANT ARE BUDGETS? They make you think ahead They make you think about how your business runs

HOW IMPORTANT ARE BUDGETS? They make you think ahead They make you think about how your business runs They engage all levels of management

HOW IMPORTANT ARE BUDGETS? They make you think ahead They make you think about how your business runs They engage all levels of management They provide measurements to compare results

HOW IMPORTANT ARE BUDGETS? They make you think ahead They make you think about how your business runs They engage all levels of management They provide measurements to compare results They allow for new products, services, and divisions to be tracked

HOW CAN BUDGETS BE ORGANIZED? Product

HOW CAN BUDGETS BE ORGANIZED? Product Service

HOW CAN BUDGETS BE ORGANIZED? Product Service Division

HOW CAN BUDGETS BE ORGANIZED? Product Service Division Location (state, region, country)

HOW CAN BUDGETS BE ORGANIZED? Product Service Division Location (state, region, country) Sales executives

HOW CAN BUDGETS BE ORGANIZED? Product Service Division Location (state, region, country) Sales executives Any combination of the above

How do you want to measure your business? Key Performance Indicators »Total Sales »Unit Sales »Gross Margin »Expense Ratios »Pretax Income »Net Income »Cash Flow »Non GAAP Measures

Types of Budgets Budgets can be prepared based on the previous year or years.

Types of Budgets Budgets can be prepared based on the previous year or years. Zero based budgeting.

Types of Budgets Budgets can be prepared based on the previous year or years. Zero based budgeting. Rolling budgets.

Types of Budgets Budgets can be prepared based on the previous year or years. Zero based budgeting. Rolling budgets. Periodic updating.

Management Involvement The more departments that are involved in the budgeting process the better the ownership in the process. When results are reported you really do not want to hear, “It is not my budget, it’s your budget”

Budget Cycle (assumes December 31, year end) September 30 (9 months results)

Budget Cycle (assumes December 31, year end) September 30 (9 months results) Templates Distributed

Budget Cycle (assumes December 31, year end) September 30 (9 months results) Templates Distributed Preliminary Budget

Budget Cycle (assumes December 31, year end) September 30 (9 months results) Templates Distributed Preliminary Budget Revised Budget

Budget Cycle (assumes December 31, year end) September 30 (9 months results) Templates Distributed Preliminary Budget Revised Budget Final Budget

Budget Templates When designing budget templates you first must decide the level of detail you want. Based on that decision, you must provide that level of detail in the historical information. Information needed to make intricate calculations should be programmed and locked in the spreadsheets.

Analysis Why do I need to look at the comparison to the previous year?

Analysis Why do I need to look at the comparison to the previous year? What is the relationship to that comparison and the comparison to the budget?

Analysis Why do I need to look at the comparison to the previous year? What is the relationship to that comparison and the comparison to the budget? Who should these reports be distributed to?

Analysis Why do I need to look at the comparison to the previous year? What is the relationship to that comparison and the comparison to the budget? Who should these reports be distributed to? Should meetings be held in conjunction with the issuance of these reports?

Monitoring Your Business Presented by: Manny Cafiero, CPA – CFO Scales Industrial Technologies, Inc.

Understanding Your Business Understanding Your Changing Environment

Questions You Need To Answer 1)What issues keep you up at night? 2)Does your business have stated goals and objectives? 3)Do you have effective leaders and management? 4)Are people willing to change? (especially leaders) 5)Are there pressures on the business? (Ex: Make more money)

Is Your Company Focus Still Relevant? What New Factors Should We Consider?  External  Internal

Developing Your Critical Success Factors (CSF’s) CSF’s are what your business MUST get right to be successful

CSF’s cover Financial & Non-Financial Areas Cash Levels Management Succession Customer Satisfaction Employee Retention A/R Collection Inventory Turns Profitability Billing per Employee

Monitoring How do you know if you are successful and meeting our objectives? You must have Key Performance Indicators (KPI’s) to measure your progress. KPI’s are: –Financial & Non-Financial –Have little chance of producing erroneous results –Timely and easy to obtain

Areas to Monitor Cash –Daily Cash Level –Cash Projections –A/R Aging & DSO –Inventory Levels & Turns –A/P Terms “Cash Is King”

Revenue Sales –Backlog Reports –Bookings –Billings Service operations –Hours Billed vs. Hours Paid –Open Calls –Covered Calls –Repeat Calls –Over Time Reports

Financial Statements Comparisons –Year to Year –As a % of Sales –Actual to Budget Ratios –Gross Profit Analysis –Gross Profit Divided by Employment –Contribution Margins –Profit as % of Sales

YTD

Non-Financial Areas Customer Satisfaction Warrantees Repeat Calls Lost Sales Vendor Relationships Employee Communication Employee Satisfaction Employee Rewards vs. Company Goals

Actions Some indicators require a limited action Some are more predictive in nature Some require immediate action Some are life threatening What Do the Indicators Mean

Focus – It’s a BalanceProfits Customer Service Gross Profit Inventory Turns Inventory Turns Labor Efficiency Labor Efficiency Better Purchasing Better Purchasing Maximize Sales Price Maximize Sales Price Collections Collections Quality Response Time Response Time Availability of Parts and Labor Availability of Parts and Labor Technical Ability Technical Ability Exceed Expectations Exceed Expectations