Download - Financial Management Best Practices

Financial ManagementBest Practices

Vince Zumbo, Chief Financial Officer

Patrick Burns, Vice President, Product Management

Vince Zumbo - Bio

Career Experience: Joined Autotask January 2011• Several venture backed technology companies• Software, SaaS, telecommunications; semiconductor and systems

integration• Sourced over $65M in venture capital and bank financing• Successful M&A and IPO experience

Chief Financial Officer

Financial Management – Best Practices

Goal:Provide ideas and processes that will enhance the way you financially manage your business

Area of Focus:Business planning & control

Understanding facts (KPI’s) and cause & effect relationships

Rolling forecasts to gain visibility and align resources

Financial Management – Best Practices

“…business is simply prioritization with limited resources”

- Mark Cattini

How Do You Manage Your Business Today?

Do you have a formal planning process?Do you know what the drivers are behind

historical trending and forward looking plans?Do you know if resources aligned with your

revenue & profitability goals?Do you know which employees are more

effective than others?Do you know which customers or sources of

revenue are more profitable than others?

How many of these can you answer “yes”?

Plan ProcessTeam

CollaborationRevenue Sources

Expense baseCash Flow

IntroduceRewards System

for Value Creation

Financial Management Components

Business Plan Elements1.0 Executive Summary

1.1 Objectives1.2 Mission1.3 Keys to Success

2.0 Company Summary2.1 Company Ownership2.2 Company History (for ongoing companies) or Start-up Plan (for new companies)2.3 Company Locations and Facilities

3.0 Products and Services3.1 Product and Service Description3.2 Competitive Comparison3.3 Sales Literature3.4 Sourcing and Fulfillment3.5 Technology3.6 Future Products and Services

4.0 Market Analysis Summary4.1 Market Segmentation4.2 Target Market Segment Strategy4.2.1 Market Needs4.2.2 Market Trends4.2.3 Market Growth4.3 Industry Analysis4.3.1 Industry Participants4.3.2 Distribution Patterns4.3.3 Competition and Buying Patterns4.3.4 Main Competitors

Business Plan Elements

5.0 Strategy and Implementation Summary5.1 Strategy Pyramids5.2 Value Proposition5.3 Competitive Edge5.4 Marketing Strategy5.4.1 Positioning Statements5.4.2 Pricing Strategy5.4.3 Promotion Strategy5.4.4 Distribution Patterns5.4.5 Marketing Programs5.5 Sales Strategy5.5.1 Sales Forecast5.5.2 Sales Programs5.6 Strategic Alliances5.7 Milestones

6.0 Web Plan Summary6.1 Website Marketing Strategy6.2 Development Requirements

7.0 Management Summary7.1 Organizational Structure7.2 Management Team7.3 Management Team Gaps7.4 Personnel Plan

8.0 Financial Plan8.1 Important Assumptions8.2 Key Financial Indicators8.3 Break-Even Analysis8.4 Projected Profit and Loss8.5 Projected Cash Flow8.6 Projected Balance Sheet8.7 Business Ratios8.8 Long-term Plan

Business Plan Elements

8.0 Financial Plan8.1 Important Assumptions8.2 Key Financial Indicators8.3 Break-Even Analysis8.4 Projected Profit and Loss8.5 Projected Cash Flow8.6 Projected Balance Sheet8.7 Business Ratios8.8 Long-term Plan

Our area of Focus today…

Business Planning

Important AssumptionsTiming – when do you do your

planning process Calendar year or fiscal year

Prioritization of initiativesRun rate business vs. new businessCompetition and cyclical variations

in your business modelUtilization % of your services

personnelFixed and variable cost structure

Calendar or Fiscal Year?

Have the Plan Completed by January 1

Assuming a Calendar Year

Business Planning






New Service Offerings?New Sources of Revenue?

New Markets?Number of new customers

signed up?New or increase size of the

bank line?List them out and Prioritize!

Business Planning






What is your customer mix in your plan? What

% are new customers vs. existing?

What are you going to change in your business

to change your mix?

Business Planning






How does competition impact your plan?

-Pricing?-Geographies?

Services?

Business Planning






What is your employee utilization rate ?

What should it be?What are your Benchmarks?

Business Planning






Fixed Costs (e.g.):-Rents-Utilities-Insurances

Variable Costs (e.g.):-People costs-Travel-Marketing costsOtherwise known as controllable costs…

Revenue Model Components

a) Run rate business vs. new businessb) Recurring vs. One Time Feesc) Cyclical variations in your monthly

modeld) Attrition or Churn e) Pricing and Discount Strategy

a) Base run rate of existing + new labor + any increase pool

b) Fringe benefit rates c) Employee turnoverd) Utilization %e) Sales costs & commissionsf) Marketing promotionsg) Travelh) Facility costsi) Utilities and insurancej) Legal fees

Cost Model Components

Summary Financial P&L ModelRevenue

Billable hours Managed Services

Maintenance

Cost of Sales

Direct labor 3rd Party

Maintenance Agreements

Software licenses

Operating Expenses

Marketing Sales G&A

EBITDA

Sources of revenue

Fixed & variable costs with direct relation to

revenue generation

Expense base of fixed andvariable expenses and indirect labor

Gross Margin

Indirect Labor

Fine Tuning Will Be Required

• Are we capital efficient?

• Have we prioritized?

• Are we profitable?


• Sources of Revenue

• Predictability• Competition

• Are we burning cash or generating cash? Cash

Required or

Generated

Revenue

CostProfitability

Mitigate the Risks

Assess the Risks

Summary Financial Cash Model

Cash Balances

CapitalEquipment

Accounts Receivable

DSO = Business Health

Cash Flow from Operations

Plan ProcessTeam



IntroduceRewards system

for value creation

Real time KPI Review

Cause & Effect What's working and what's not?


Top Ten Key Performance IndicatorsAll Compared to Plan AND to Prior Year Results1. New Business Bookings MRR

2. Net Business Bookings (after attrition)

3. Recurring Revenue (Invoiced customers)

4. Gross Profit Margin

5. Operating Expenses

6. EBITDA

7. Headcount

8. Utilization Rate

9. Cash Balances & Debt Ratios

10. Accounts Receivable DSO (AR/Revenue X # of days)

Other KPI’s You Need to Consider…

Revenue and Cost per Employee

Cost of Customer Acquisition

Months to Break Even on Sales and Marketing Costs

Average Revenue/Billings per Customer

Attrition value and % of Recurring Revenue

Current Ratio

(Current assets/current liabilities)

Customer Survey Results

Average Selling Price

ROI on Sales and Service Personnel

Break Even Point in Revenue

Plan ProcessTeam



IntroduceRewards system

for value creation

Real time KPI Review

Cause & Effect What's working and what's not?

“What if” AnalysisOther markets

New Sources of Revenue

Other Funding Sources

Rolling ForecastingSpending Resource

AlignmentReassess Cash


The “Plan”is Fixed

“Planning” is an on-going

process

Rolling Forecasts & Continuous “Planning” Are Essential to Sound Financial Management

• Are we capital efficient?


• Are we profitable?


• Sources of Revenue

• Predictability• Competition

• Are we burning cash or generating cash? Cash

Required or

Generated

Revenue

CostProfitability

Mitigate the Risks

Assess the Risks

Summary Dos & Don’ts

Do a Financial Plan & create a culture of financial management

Do know your KPI facts vs. plan and prior year

Do continuous planning through rolling forecasts

Don’t put the plan in a draw to be forgotten after completed

Don’t fail to act on what your KPI’s are telling you

Don’t manage your business without a sound financial roadmap

PERFORMANCE DASHBOARDS

Patrick Burns Vice President,

Product Management

Performance Dashboards

Access to KPI’s and trending data

Pre-configured but customizable

Flexible analysis features

Extensible to multiple data sources