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Growth through metrics and cash - Chris James

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Chris James a partner with B2B CFO talks about business metrics and cash. How are they important to business growth?

Chris James a partner with B2B CFO talks about business metrics and cash. How are they important to business growth?

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  • Poor forecasting of cash flow, revenues and profits, leading to surprises. Lack of awareness and compliance with loan covenants. Management has insufficient financial experience.
  • 6 B2B CFO Solutions
  • Transcript

    • 1. Growth through Metrics & a Discussion on Cash Chris James - Partner B2B CFO® cjames@b2bcfo.com
    • 2. Lack of quantifiableobjectives can lead to… Customer churn Weak revenue Poor margins Employee turnover Low business value
    • 3. 6 Effective Business Metrics
    • 4. 1 Why Metrics?More Focus – reducing noiseBetter Vision. – more insights intoyour business and industry.Better Decisions using a simpleframework
    • 5. 2 SMART MetricsSpecific, Measurable, and TimelyFour to six is a good numberFocus team effortsFeed company culturePromote Success
    • 6. 3 Key Business ObjectivesImprove Business Performance Revenue management Cost control and reductionImprove Organizational Performance Quality control Customer Satisfaction Cycle time management
    • 7. 4 Metrics ExamplesFinancial - Gross Margin, Overheads, Collections,Cash cycleCustomer - On time delivery, Complaints, Newcustomers acquiredInternal Processes - Rework, Labor utilization,OvertimeLearning - Employee satisfaction index, Numberof cross trained employees
    • 8. 5 Managing with MetricsChoose key performance indicatorsMonitor long term trendsCompare with plans and forecastsDashboard for easy reviewReview annually
    • 9. Cash Forecasting is Critical W/E 07/4 W/E 07/11 W/E 07/18 W/E 07/25 July Wk1 Fcst Wk1 Act Wk2 Fcst Wk2 Act Wk3 Fcst Wk3 Act Wk4 Fcst Wk4 Act Total - Fcst Total - ActBeginning Balance (189,019) (189,019) 73,739 73,739 (33,531) (33,531) 280,115 280,115 (189,019) (189,019)ReceiptsTotal Receipts 1,350,000 1,300,694 571,191 562,172 893,548 883,411 727,472 - 3,473,748 2,746,277DisbursementsTo Vendors 481,887 329,756 10,000 22,931 61,992 54,476 464,727 16,865 871,890 424,028Handchecks 50,000 71,121 50,000 114,749 50,000 45,665 50,000 15,468 281,535 247,003Formosa costs - payroll - -Seacoast costs - payroll 527,058 467,894 373,461 373,461 336,120 336,120 322,424 322,424 1,499,899 1,499,899Arkansas payroll 95,000 154,164 140,598 140,598 118,503 118,503 132,735 138,199 546,000 551,464Payroll 15,000 15,000 15,000 17,704 15,000 15,000 15,000 15,000 62,704 62,704Bankrupcy Settlement - -Total Disbursements 1,168,945 1,037,935 589,059 669,443 581,616 569,765 984,886 507,956 3,262,029 2,785,098Ending Cash (7,964) 73,739 55,871 (33,531) 278,402 280,115 22,701 (227,841) 22,701 (227,841)
    • 10. Adviant Financial Comparison to Benchmark This is an important metric. In fact, over This number indicates the percentage of sales time, it is one of the more important revenue that is not paid out in direct costsbarometers that we look at. It measures how (costs of sales). It is an important statistic that many cents of profit the company is can be used in business planning because it This metric shows G & A payroll expense generating for every dollar it sells. Track it indicates how many cents of gross profit can for the company as a percentage of sales.carefully against industry competitors. This be generated by each dollar of future sales. is a very important number in preparing Higher is normally better (the company is more forecasts. The higher the better. efficient).
    • 11. Bright Blue Marketing Financial Comparison to BenchmarkThis is another good indicator of liquidity,although by itself, it is not a perfect one. Ifthere are receivable accounts included in thenumerator, they should be collectible. Look This ratio shows the average number ofat the length of time the company has to pay This number reflects the average length of days that lapse between the purchase ofthe amount listed in the denominator time between credit sales and payment material and labor, and payment for them.(current liabilities). The higher the number, receipts. It is crucial to maintaining positive It is a rough measure of how timely athe stronger the company. liquidity. The lower the better. company is in meeting payment obligations. Lower is normally better.
    • 12. Solace Networks Financial Comparison to BenchmarkThis Balance Sheet leverage ratio This ratio measures a companys Generally, this metric measuresindicates the composition of a ability to repay debt obligations from the overall liquidity position of acompany’s total capitalization -- the annualized operating cash flow company. It is certainly not abalance between money or assets (EBITDA). perfect barometer, but it is aowed versus the money or assets good one. Watch for bigowned. Generally, creditors prefer a decreases in this number overlower ratio to decrease financial risk time. Make sure the accountswhile investors prefer a higher ratio to listed in "current assets" arerealize the return benefits of financial collectible. The higher the ratio,leverage. the more liquid the company is.
    • 13. Nitro Marketing, LLC Financial Comparison to Benchmark Actual thru Measurement June 2010 BenchmarkIncome StatementSales (Income): $ 2,138,350Cost of Sales (COGS): 381,283Percent of Sales 17.8% 30.4%G & A Payroll Expense (optional): 622,092Percent of Sales 29.1% 32.4%Net Profit before Taxes: 196,160Percent of Sales 9.2% 8.7%Other Metrics:Sales per employee $ 388,791 $ 185,868Return on Assets 178.4% -0.1%Comments:G&A Payroll is increasing. Should understand why.Are income taxes being planned for?Is a credit line available to help address uncertainty?Does the business owner have clarity for the future?his appears to be a significantly valuable company. Protect yourself.Excellent cash flow with little working capital used for the business.
    • 14. BreakSmall Groups should discuss their reports and generate questions - 30 minutes?
    • 15. Cash… the LifebloodWhat’s Your Pulse?
    • 16. 4 Stages of Cash Stage 1: Infrastructure Creation Owner’s Activities• Building relationships with customers• Creating relationships with vendors• Delegating tasks to employees or associates• Causing sales and cash to come into the company
    • 17. Stage 2: Infrastructure PeakThe result of Infrastructure Creation is Infrastructure Peak• Few customer complaints• High customer service• Low overhead• Company runs “lean and mean”• Short cash collection cycles• Personal sacrifice by the Finder
    • 18. Stage 3: OutgrowthResult of running lean is burn-out of owner and employees Attitudes change, owner thinks: “I should have a raise” “We need more people so we can take time off” “We need a better building” “I need a new car/house/vacation……” “We should buy more equipment or inventory”
    • 19. Goal clarityIncreased profits and cashTrusted long term advisorSeasoned partnersNo contractNational partner resources
    • 20. Thank You!

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