Quality Control and Impact Mike Derringer€¦ · Accounts Receivable Days (#) 60 Days Accounts...
Transcript of Quality Control and Impact Mike Derringer€¦ · Accounts Receivable Days (#) 60 Days Accounts...
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CFO Services for Small and Medium Size Businesses
Quality Control and Impact
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Mike DerringerArea President
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We care deeply about the small business community and
closely held, second stage businesses.
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Our GoalTo help businesses increase their
operating efficiency and grow their value
Our process is called Value Enhancement3
✓ Increase Cash Flow✓ Reduce Business Risk✓ Platform for Growth Initiatives
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FocusCFO: Who We Are
• Started in 2001. By far the largest CFO practice
in Ohio, and likely in the Midwest
• Clear market leader, more experience than
anyone in the area
• Current CFO Team
– 35+ CFOs in Ohio
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Our CFOs…• Hands-on. Roll up their sleeves
• 25+ years strategic, financial, and operational experience
• Expertise across a variety of industries.
• Served as a CFO or larger company financial executive. Most have been a ”Number 2”
• Experience working with entrepreneurs and business owners
• Banking and credit expertise
• Drive internal cash flow
• Bring large company experience to the small company environment
• Strong operations background
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CFO Services
• CFOs are not accountants
– Accounting is a by-product of what we do, but not the goal
• Goals of CFOs
– Drive internal cash flow
– Strong internal reporting, including management reports, PL, BS, CF, budgets, forecasts, covenant calcs
– Critical forward looking information for management team, banks, CPAs and other key advisors
• Get business owner to focus on the BIG PICTURE
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CFO Services
• The BIG PICTURE – Quality!
– Inventory levels/turns
• Turn and Earn
– Gross Margin * Inventory Turns
– Waste/Scrap – impact on gross margin
– Process improvement can drive all of the above
– How?
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VALUE REALIZATION TEAM
4ADVISORS, COACHES, SPECIALISTS
✓ Strategic planning✓ Growth strategies✓ Leadership development
3CFO
✓ Forward looking and proactive✓ Internal financial sophistication✓ Business analysis and planning
2ATTORNEY, BANKER, CPA, TRUSTED ADVISOR
✓ Key Business Information✓ Tax planning and external
reporting✓ Legal, Banking, Payroll, Insurance
1Foundation
Health
Growth
✓ Succession planning✓ Business transition✓ Transaction execution
Business Owner’s Journey Value Enhancement Pyramid
Value
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What is at the Summit of Your Mountain Business Value - Transaction execution▪ Succession planning▪ Transition to Next
Generation▪ ESOP, Leveraged Recap or
Management Buy Out▪ Continue to run with
Management Team▪ Shut it down▪ Estate Planning
Value
Growth
Health
Foundation
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How Do You Begin to Climb the Mountain!
Start at the bottom and take one stage at a time
Foundation
Health
Growth
Value
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Balance Focus on Health & Growth
OptimizeCash Flow
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Time
Focu
sCFO
Exp
ertis
e
Health
Cash Flow
Value Creation
Growth
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Driving your Cash Flow“Be willing to make decisions. That’s the most important quality in a good leader. Don’t fall victim to what I call ‘ready-aim-aim-aim-aim syndrome’. You must be willing to fire.”
- George S. Patton
Cash
Health Growth
Control
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Cash versus Cash FlowThere are only three places to get cash …
… every business must generate strong cash flow
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Investor Bank Business
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The Numbers (Health)
Before After Change
Health Indicators
Inventory Turns (#) 4.0x 6.0x +2 turns
Accounts Receivable Days (#) 60 DSO 45 DSO -15 days
Gross Margin Percentage (%) 32.5% 34.0% +1.5 points
Cash Flow from Operations $182,199 $785,119 +331%
Bank Revolving Debt Balance $1,293,986 $724,582 -44%
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The Numbers (Health + Growth)
Before After Change
Health Indicators
Inventory Turns (#) 4.0x 6.0x +2 turns
Accounts Receivable Days (#) 60 DSO 45 DSO - 15 days
Gross Margin Percentage (%) 32.5% 34.0% +1.5 points
Growth Indicators
Healthy Sales per day (22 days/mo) ($) $20,000 $24,000 +$4,000
Total Sales $5,280,000 $6,336,000 +20%
Cash Flow from Operations $182,199 $1,198,760 +558%
Bank Revolving Debt Balance $1,293,986 $793,258 -39%
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Your Cash Flow Factory
• 4 Steps• Working Capital – Inventory (#)
• Working Capital – Accounts Receivable (#)
• Gross Margin (%)
• Healthy Sales ($)
• Health First!
Creating Health and Growth for your Business
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Health
Health Level
- Positive Cash Flow from operations - Forecasting & Budgeting
- Risk management – better information
- KPI’s
- Do you have your hands around the business
- CFO
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Sample Company Starting
Point
Financial Summary
Sales $5,280,000
Operating Profit $227,600
Operating Profit (%) 4.3%
Bank Debt Balance $1,293,986
Annual Cash Flow from Operations $182,199
Current State of the Business▪ $5.3 million in sales▪ Profitable, but has done better in
the past▪ Bank debt is high ▪ Bank may not want to lend more▪ Cash flow – After interest and
taxes, not much left
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Key Indicators & ResultsStarting
Point
Financial Summary
Sales $5,280,000
Operating Profit $227,600
Operating Profit (%) 4.3%
Bank Debt Balance $1,293,986
Annual Cash Flow from Operations $182,199
Health Indicators
Inventory Turns (#) 4.0
Inventory Balance $858,000
Accounts Receivable Days (#) 60 Days
Accounts Receivable Balance $880,000
Gross Margin (%) 32.5%
Sales per day ($) 22 days/mo $20,000
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Current State of the Business$5.3 million in sales
Profitable, but has done better in the past
Bank debt is high
Bank many not want to lend more
Cash flow – After interest and taxes, not much left
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Step 1: Inventory
Starting Point Step 1:
Inventory Turns Change
Financial Summary
Sales $5,280,000 $5,280,000
Operating Profit $227,600 $227,600
Operating Profit (%) 4.3% 4.3%
Bank Debt Balance $1,293,986 $1,011,124
Annual Cash Flow from Operations $182,199 $474,192
Health Indicators
Inventory Turns (#) 4.0 6.0 +2 turns
Inventory Balance $858,000 $572,000
Accounts Receivable Days (#) 60 60
Accounts Receivable Balance $880,000 $880,000
Gross Margin (%) 32.5% 32.5%
Sales per day ($) 22 days/mo $20,000 $20,000
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Step 2: Accounts Receivable Step 1:
Inventory Step 2:
Accts Receivable Change
Financial Summary
Sales $5,280,000 $5,280,000
Operating Profit $227,600 $227,600
Operating Profit (%) 4.3% 4.3%
Bank Debt Balance $1,011,124 $782,096
Annual Cash Flow from Operations $474,192 $710,626
Health Indicators
Inventory Turns (#) 6.0 6.0
Inventory Balance $572,000 $572,000
Accounts Receivable Days (#) 60 45 -15 days
Accounts Receivable Balance $880,000 $660,000
Gross Margin (%) 32.5% 32.5%
Sales per day ($) 22 days/mo $20,000 $20,000
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Step 3: Gross Margin Step 2:
Accts Receivable Step 3:
Gross Margin Change
Financial Summary
Sales $5,280,000 $5,280,000
Operating Profit $227,600 306,800
Operating Profit (%) 4.3% 5.8%
Bank Debt Balance $782,096 $724,582
Annual Cash Flow from Operations $710,626 $785,119
Health Indicators
Inventory Turns (#) 6.0 6.0
Inventory Balance $572,000 $572,000
Accounts Receivable Days (#) 45 45
Accounts Receivable Balance $660,000 $660,000
Gross Margin (%) 32.5% 34.0% +1.5%
Sales per day ($) 22 days/mo $20,000 $20,000
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Growth
Growth Level
- Scaling the business- Right Systems and monitors/KPI’s - Unkink the hose, what are the constraints?- Sales Management- Operational efficiencies- Business or Growth Coach, Advisory board
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Step 4: Healthy Sales Step 3:
Gross Margin Step 4:
Sales / Day Change
Financial Summary
Sales $5,280,000 $6,336,000
Operating Profit 306,800 626,240
Operating Profit (%) 5.8% 9.9%
Bank Debt Balance $724,582 $793,258
Annual Cash Flow from Operations $785,119 $1,198,760
Health Indicators
Inventory Turns (#) 6.0 6.0
Inventory Balance $572,000 $572,000
Accounts Receivable Days (#) 45 45
Accounts Receivable Balance $660,000 $660,000
Gross Margin (%) 34.0% 34.0%
Sales per day ($) 22 days/mo $20,000 $24,000 +20%
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How To: Cash Flow Factory Before After Change
Financial Summary
Sales $5,280,000 $6,336,000 +$1,056,000
Operating Profit $227,600 626,240 +$398,640
Operating Profit (%) 4.3% 9.9%
Bank Debt Balance $1,293,986 $793,258 -$500,728
Annual Cash Flow from Operations $182,199 $1,198,760 +$1,016,561
Health Indicators
Inventory Turns (#) 4.0 6.0 + 2.0 turns
Inventory Balance $858,000 $572,000 -$286,000
Accounts Receivable Days (#) 60 45 -15 days
Accounts Receivable Balance $880,000 $660,000 -$220,000
Gross Margin (%) 32.5% 34.0% +1.5%
Sales per day ($) 22 days/mo $20,000 $24,000 +20%
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Health Before Growth START Inventory
Accounts Receivable
Gross Margin Sales
Health First
Sales $5,280,000 $5,280,000 $5,280,000 $5,280,000 $6,336,000
Operating Profit (%) 4.3% 4.3% 4.3% 5.8% 9.9%
Bank Debt $1,293,986 $1,011,124 $782,086 $724,582 $793,258
Cash Flow Ops $182,199 $474,192 $710,626 $785,119 $1,198,760
START SalesGross
MarginAccounts
Receivable Inventory
Growth First
Sales $5,280,000 $6,336,000 $6,336,000 $6,336,000 $6,336,000
Operating Profit (%) 4.3% 8.4% 9.9% 9.9% 9.9%
Bank Debt $1,293,986 $1,476,554 $1,399,704 $1,124,860 $793,258
Cash Flow Ops $182,199 $475,254 $572,735 $856,452 $1,198,760
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Risk
Cash Flow
Cash Flow x Risk = Business Valuation
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Value
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Value Enhancement Process
Determine Business Owner Goals•Sell now?•Future Liquidity Event?•Future Succession Transfer?
•Just get healthy?
Understand Value•Get current valuation•Understand what is detracting from value
•Identify “Value Enhancers”
Grow Value•Increase Internal Cash Flow•Reduce Business Risk•Drive Value Enhancers
Realize Value•Sale•ESOP•Succession Transfer•Increased Cash Flow and Owner Compensation or Distributions
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Operations
Accounting
Revenue
Business Foundation
Business Planning
Creating Wealth
Cash Flow
Value Enhancement
• Identify Areas to Improve• Tie to your goals• Focus on 2-3 at a time• Tie to Strategic Planning• Where do you want to be
in:– 90 days– 1 year– 3 years– 10 years
• Keep it Simple
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Four COAR℠ Systems
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Next Steps
• Diagnostic Value Enhancement Report
• Customized based on your business and your goals
• Framework for you to move forward
• Develop your key advisory team
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180 Day Plan
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30 days 60 days 90 days 180 days
Foundation
Review accounting system and financial statements
Review Business Insurance
Review IT Security and Backup Plan
Review Employee Benefits Group Insurance
Review Human Resource Policies
Review tax planning process
Review other legal contracts / agreements
Health
Review Invoicing Process
Review of AR & AP
Short Term Cash Flow review
Review financial statement formats and agree on what may be best moving forward
Perform an inventory analysis
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180 Day Plan
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30 days 60 days 90 days 180 days
Growth
Perform a SWOT Analysis with the management team
Create a written Strategic Plan
Create a Forecast / Budget IS,BS,CF at least 1 year out (2018)
Create a Dashboard w/ ACT vs. BUD vs. LY for Sales, GPM, NI, AR, INV + others as needed
Review Pricing Policy
Value
Discuss long term goals for the business and strategic initiatives to get there
Develop a plan for the transition of the business
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What is at the Summit of Your Mountain Business Value - Transaction execution▪ Succession planning▪ Transition to Next
Generation▪ ESOP, Leveraged Recap or
Management Buy Out▪ Continue to run with
Management Team▪ Shut it down▪ Estate Planning
Value
Growth
Health
Foundation
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Nobody does it alone, find good advisors and communicate with them