DEW14 - Business financials made simple

Business FinancialsMade Simple

Presented by

SCORE - Detroit ChapterAnd

Detroit Entrepreneur Week

Business Financials Made Simple 2

Introductions

From checkbooks to Quickbooks

Financial Statements

Analysis made simple

Agenda


365 Chapters in the US Detroit Chapter has 84 members 50 years of helping business owners

Mentoring - Free and Confidential Workshops

Scheduled workshops – small fee Community presentations like this one

Detroit Chapter: 313-226-7947, www.detroit.score.org

SCORE - A Volunteer Resource for Small Businesses


Improves your profitability Cost control Analysis and planning

Required for loans

Importance of Keeping good financial records


Startup businesses often keep their financials through their business checkbook

Growing businesses need what big business calls “Enterprise Software”

Entry level and mid-size business software Quickbooks by Intuit Sage 50 (New Name for Peachtree software)

Checkbooks to Quickbooks


Software is available On your desktop In the Cloud

Maintain your financial records Yourself or someone in your

company An Accountant or bookkeeping

service Pay attention to information security



Financial data are more than just a bank balance Financial reports for lenders and yourself Payroll and taxes Prepare invoices and quotes Keep inventory and Purchase orders

Enterprise software improves productivity and your financial control



Sales Plans >>>>>> >>Revenue Projections

Purchasing Plans>>>>Cost of Goods Sold Estimates Direct Materials and Direct Labor (for production)

And/or Finished Goods (for resale)

Budgets >>>>>>>>>>>Operating Expense Estimates

Sources of Financial Information for Planning


Revenues: Customer invoices or POS systems Their payments

Costs/Expenses: Vendor/Supplier invoices Your payments

Chart of Accounts: Account number and name assigned to invoices and payments

Sources of Information for Financial Statements


Bookkeeping is simply Data Entry into financial software (Enterprise software) Not difficult but can be time consuming POS retail systems provide automatic

(electronic) sales data entries

Use a professional for setup Key accounts unique to your business Transactions, debts and ownership

Bookkeeping


Operating Statements Profit & Loss – tracking sales and

expenses Cash Flow – your ability to pay bills

Financial Health Balance Sheet – key document for

lenders

Principal Financial Statements


Profit and Loss Statement

Simplified P & L Revenues

Less Cost of goods (COG)

Gross Profit Expenses

Rent Utilities Others

Net Profit = Gross Profit less Expenses

Definitions Revenues = Sales – net of

discounts COG = the actual cost of

materials, labor or goods that you sell

Expenses Common costs to operate your

business Recorded at time of payment

Or reserve account for future payments


Cash Flow Statement

Period Month 1 Month 2 Month 3

Revenues $5,000 $10,000 $2,000

COGS - $3,000 - $6,000 - $1,200

Gross Profit $2,000 $4,000 $800

Expenses - $1,200 - $1,400 - $1,200

Net Profit $800 $2,600 ($400)

Taxes - $200 - $400 - $1,100

Net Profit after Taxes $600 $2,200 ($1,500)

Beginning Cash in Bank $1,000 $1,600 $3,800

Ending Cash in Bank $1,600 $3,800 $2,300


Balance Sheet

Assets Sort term Long term Equipment

Liabilities Short term

loans Long term

loans

Owners Equity

Assets = Liabilities plus Owners Equity

Equals


Hide it in a drawer? or File with Uncle Sam? And Aunt

Michigan? And Daddy Detroit? or Act as responsible Business Owners!!!

Analyze results Take corrective action as needed Make plans for growth Work with lenders and advisors

What do we do with this stuff?


Revenues/SALES are results Sales (objectives) plans are projections Analysis is simply comparing your results

with your plans – control your business Small businesses can evaluate the

affect of promotions, sales staff performance, etc.

Take corrective action if performance lags plans

SALES Analysis made simple – plan and compare


COG and Expenses are actual payments to suppliers and vendors

Budgets are your plans for these cost COG based on sales levels Expenses are common costs to run the business

Compare budgets to actual costs monthly Be alert to problems or issues Understand what bills belong into each account

COST Analysis made simple – plan and compare


Download information from your Enterprise Software into spreadsheet software

Compare plans with performance monthly, quarterly and annually Sales Plan and Budgets Revenues, COG and Expenses

Pay attention to seasonal issues

Analysis made simple – plan and compare


Variance Analysis Example

Item Actual Budget/Projection

Variance

Sales $2,000,000 $2,200,000 ($200,000)

Inventory turns 12 times/year 15 times/year (3 times/year)

Receivables aging

45 days 35 days 10 days

Sales per employee

Average Sales Ticket


Balance sheets are simply a list of your Assets, Liabilities and Owners Equity

Lenders have created a set of ratios that act as grades of your performance Your performance should be at or

above your industry’s average Industry average information is

available and lenders have that information

Balance Sheet Ratios – the keys to business loans


Types of financial ratios Common size ratios – compares you to your

industry Liquidity ratios – compares assets to

liabilities Operating ratios – how well you run your

company Solvency ratios – will you run out of cash Collateral ratios – assets available to secure

credit



Liquidity ratios A measure of a company’s ability to

cover expenses Current Ratio – Total current assets

divided by current liabilities – 2 to 1 is acceptable

Quick Ratio – Current assets minus inventory divided by current liabilities – .5 to 1 is acceptable



Days receivable ratio – 365 divided by the Sales Receivables ratio. Often called A/R aging. Example: 365/11.8 = 31 days

Sales to receivables – Net Sales divided by Net Receivables. Represents the number of times A/R has been collected in a year. Example (000): $200/$17 = 11.8 x’s



Understanding and using your financial reports helps you become a good Business Owner More than just being a good operator

Thank You for your attention and participation

Contact SCORE about Mentoring, Workshops and other small business resources www.detroit.score.org

Financials – The Keys toGrow Your Company and Profits

DEW14 - Business financials made simple

Economy & Finance

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