1. Finance for Non- Financial Managers Presented by Greg Tilley Weather Gage LLC February 2, 2016

2. Agenda Financial Literacy, Why It Matters and Who Needs It The Big 3 Financial Reports Income Statement (P&L), Cash Flow Statement, Balance Sheet Definition of Costs Fixed, Variable, Direct, Indirect, SG&A, COGS, etc. Key Measures of Success Top Line, Bottom Line, Gross Margin, EBIDTA, Cash Flow, Key Ratios Forecasting and Budgeting Goal Setting vs Guessing Copyright 2016, Weather Gage llc 2

3. Financial Literacy and Why It Matters Business success is measured in $ Financial reports are the ‘scorecard’ You can’t manage what you can’t measure Financial forecasting offers A method to examine the feasibility of your numbers A modeling tool that helps you evaluate variable factors A blueprint you can adjust to achieve your financial goals Financial literacy allows you to make better business decisions Copyright 2016, Weather Gage llc 3

4. Not Just for CEO’s and Accountants Visibility and Accountability Improve Performance of Middle Managers CEO’s should enable visibility to lower level managers The company accountant or CFO can prepare relevant statements The operating unit manager can be accountable for unit performance Well Run Organizations Distribute P&L Authority Division managers can run their operating units as if they were a subsidiary Production managers can optimize their systems to improve financial performance Sales managers can be incentivized to sell the most profitable services Copyright 2016, Weather Gage llc 4

5. The Big 3 Financial Reports Performance over a period of time Answers the question; “Is my company profitable?” Income Statement (P&L) Cash inflows and outflows Answers the question; “Will my company run out of money?” Cash Flow Statement Company health at a point in time Answers the question; “What is my company’s net worth?” Balance Sheet Copyright 2016, Weather Gage llc 5

6. Income Statement (Profit and Loss) Fly by Night Aerial MappingFY 2015% + Revenue (Sales)5,000,000100 - Direct Costs (Variable Costs, Cost of Sales)3,000,00060 = Gross Margin2,000,00040 - Indirect Costs (Fixed Costs, Overhead, SG&A)1,500,00030 = EBIDTA (Operating Income)500,00010 - Interest, Depreciation, Taxes, Amortization200,0004 = Net Profit300,0006 Copyright 2016, Weather Gage llc 6

7. 7

8. Cash Flow Statement Fly by Night Aerial MappingJanuaryFebruary Starting Cash500,000450,000 + Cash In250,000300,000 - Purchases50,00070,000 - Payroll200,000 - Operating Costs40,00050,000 - Financing Costs10,000 = Ending Cash450,000420,000 Copyright 2016, Weather Gage llc 8

9. 9 JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecemberTotals Beginning Balance $ 3,000 $ 5,151 $ 6,753 $ 9,138 $ 10,152 $ 11,167 $ 11,595 $ 12,610 $ 13,624 $ 14,052 $ 15,066 $ 16,081 Cash Inflows Cash Sales 8,250 9,250 11,750 8,750 $ 108,000 Accounts Receivable - - - - - - - - - - - - $ - Total Cash Inflows $ 8,250 $ 9,250 $ 11,750 $ 8,750 $ 108,000 Cash Outflows Investing Activities New Fixed Asset Purchases - - - - - - - - - - - - $ - Additional Inventory $ - Cost of Goods Sold 506 656 869 744 $ 8,725 Operating Activities Operating Expenses 250 1,250 $ 4,000 Payroll 5,206 6,605 $ 77,862 Taxes - - 1,505 - - 586 - - - - 387 $ 3,064 Financing Activities Loan Payments 137 $ 1,640 Owners Distribution $ - Line of Credit Interest - - - - - - - - - - - $ - Line of Credit Repayments $ - Dividends Paid $ - Total Cash Outflows $ 6,099 $ 7,648 $ 9,366 $ 7,736 $ 8,321 $ 7,736 $ 8,322 $ 7,736 $ 9,123 $ 95,292 Net Cash Flows $ 2,151 $ 1,602 $ 2,384 $ 1,014 $ 429 $ 1,014 $ 428 $ 1,014 $ (373) $ 12,708 Operating Cash Balance $ 5,151 $ 6,753 $ 9,138 $ 10,152 $ 11,167 $ 11,595 $ 12,610 $ 13,624 $ 14,052 $ 15,066 $ 16,081 $ 15,708 Line of Credit Drawdown $ - Ending Cash Balance $ 5,151 $ 6,753 $ 9,138 $ 10,152 $ 11,167 $ 11,595 $ 12,610 $ 13,624 $ 14,052 $ 15,066 $ 16,081 $ 15,708

10. Balance Sheet Fly by Night Aerial Mapping12/31/2015 Current Assets (cash, receivables, prepaid expenses)500,000 Fixed Assets (less depreciation)1,000,000 + Assets1,500,000 Current Liabilities (payables, short term loan balance)200,000 Long Term Liabilities (long term loan balance)500,000 - Liabilities700,000 = Equity800,000 Liabilities + Equity =1,500,000 Copyright 2016, Weather Gage llc 10

11. Copyright 2016, Weather Gage llc 11

12. Defining Costs Direct Costs Any material, expense or labor cost that is directly related to the product or service delivered – on a T&M contract, these costs are billable to the client Also called Variable Costs Cost of Sales Cost of Goods Sold Indirect Costs Any cost that would be incurred regardless of whether a product or services is delivered – on a T&M contract, these costs make up the overhead multiplier Also called Fixed Costs Overhead SG&A (Sales, General and Admin) Copyright 2016, Weather Gage llc 12

13. Examples of Costs Direct Costs Payroll related to performance Pilot, Survey Crew, Compilers Travel related to performance Aircraft Fuel Equipment fees related to performance Subcontract costs Indirect Costs Payroll not related to performance Management, Sales, Admin Travel not related to performance Professional fees Rent, Utilities Insurance Office expenses Copyright 2016, Weather Gage llc 13

14. Products vs Services Direct Costs - Products Manufacturing Raw Materials Used Manufacturing Labor Packaging Retail Change in Inventory Packaging Direct Costs - Services Technical Labor Compilers, Sensor Operators, Pilots Subcontract Costs Consultants Supplies Used Delivery Media Copyright 2016, Weather Gage llc 14

15. Key Measures of Success (P&L) Revenue (Sales) Measures ability to attract business Gross Margin( Gross Profit) Measures cost effectiveness in delivering products / services EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) Measures operating performance Net Profit Measures overall profitability Copyright 2016, Weather Gage llc 15

16. Key Measures of Success (CFS & BS) Net Cash Flow = Cash In – Cash Out Measures sustainability Equity = Assets - Liabilities Measures net worth, or book value Current Ratio = Current Assets / Current Liabilities Measures liquidity Debt to Equity Ratio = Total Liabilities / Equity Measures leverage Copyright 2016, Weather Gage llc 16

17. Gross Margin – The Money Measure For Operations Managers: Is GM in line with competitors? Is GM trending up or down? What can I do to improve GM? Are my unit heads incentivized by GM? For Sales Managers Is the sales staff incentivized by GM? Do the sales know which services offer the highest GM? Jan 2016% + Sales500,000100 - Direct Costs200,00040 = Gross Margin300,00060 Copyright 2016, Weather Gage llc 17

18. Forecasting and Budgeting A Financial Forecast is a prediction of future performance Always includes a P&L, and can also include a BS and CFS Also called a Pro Forma A Budget is derived from the P&L Forecast What is the difference? A budget is generally fixed for the year and shared with lower level staff A forecast may be updated periodically as conditions change A budget may not include expenses out of the control of managers (ITDA) Copyright 2016, Weather Gage llc 18

19. Copyright 2016, Weather Gage llc 19

20. Copyright 2016, Weather Gage llc 20

21. Forecasting and Budgeting Is it Guessing? How do I know what my sales will be next year? I can’t predict my expenses. What if fuel prices rise, or fall? What if I have an unexpected equipment failure? Or Goal Setting? Set expectations that are challenging but achievable Plan resources to meet goals Do I have enough sales staff & marketing resources? Do I need to invest in more infrastructure? Anticipate contingencies Copyright 2016, Weather Gage llc 21

22. Managing to the Forecast Used properly, the Financial Forecast is the business navigation system It not only tells you the destination, it tells you how to get there It allows you to examine the feasibility of your numbers It is a modeling tool that helps you evaluate variable factors It introduces discipline into the decision process The devil is in the assumptions – bad assumptions means a bad forecast Copyright 2016, Weather Gage llc 22

23. Questions? Greg Tilley Weather Gage LLC 703-344-6103 Greg.Tilley@Weather-Gage.com www.weather-gage.com Copyright 2016, Weather Gage llc 23