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Follow The Money Presented 20100202

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Analyzing financial statements is not why you started the business! But, learning to read and affect your balance sheet and profit and loss (P&L) statements will result in better and more profitable …

Analyzing financial statements is not why you started the business! But, learning to read and affect your balance sheet and profit and loss (P&L) statements will result in better and more profitable decision making.

Published in: Business, Economy & Finance

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  • 1. Sigma Free Presents… Follow the Money Find the Value in Knowing Your Financials Provided by Sigma College of Small Business, Inc.
  • 2. Agenda Introductions Keynote Topic Follow the Money Find the Value in Knowing Your Financials Break – Refreshments and Networking Ask  Keynote Conclusion Questions  Follow the Money Any Time Find the Value in Knowing Your Financials Follow the Money – Find the Value in Knowing Your Financials 2 Copyright 2010 Sigma College of Small Business, Inc.
  • 3. Financial Statements Not Just for Banks and Accountants • Banks – Evaluate “health” of the business – Ability to pay back loans • Business Owners – Evaluate performance – Improve the “health” of the business – Improve ability to pay back loans – Make sound financial decisions Follow the Money – Find the Value in Knowing Your Financials Copyright 2010 Sigma College of Small Business, Inc. 3
  • 4. Key Financial Statements Summary of transactions over a period  Financial Position at a  Financial Position at a  of time that accounts for differences  specific point in time specific point in time between balance sheets Balance Sheet Balance Sheet 12/31/2007 2008 12/31/2008 Profit and Loss Statement 2008 Statement of Cash Flows 2008 Statement of Owner Equity Account Balance: How did the balance go  Account Balance: $1,000 from $1,000 to $2,000 $2,000 Follow the Money – Find the Value in Knowing Your Financials 4 Copyright 2010 Sigma College of Small Business, Inc.
  • 5. Balance Sheet Assets Liabilities OWNED OWED Current Liabilities Current Assets To be paid within12 months Quickly convertible to cash (loan payments for year, accounts  (bank accounts, accounts  payable, payroll liabilities) receivable, inventory) Long Term Liabilities Due beyond 12 months Fixed Assets (Long term loans) Not quickly convertible to  cash (equipment, facilities) Owner Equity Assets ‐ Liabilities Owner’s Equity = Assets ‐ Liabilities Follow the Money – Find the Value in Knowing Your Financials 5 Copyright 2010 Sigma College of Small Business, Inc.
  • 6. Widgets, Inc. Balance Sheet Assessment Balance Sheet is a  “Snap Shot” in time Total Assets =  Analyze “trends”  Total Liabilities +  for changing  Owners Equity financial positions Follow the Money – Find the Value in Knowing Your Financials 6 Copyright 2010 Sigma College of Small Business, Inc.
  • 7. Profit and Loss Statement aka The Income Statement Gross Revenue Revenues Gross Margin Total amount brought in from  Amount left over after the  operations “Cost of Goods Sold” (COGS) aka Sales, Gross Sales, Net Sales aka Gross Profit, Margin Expenses “Operating” Expenses Interest, Taxes and  Paid for selling and delivery Ammortization (payroll, marketing, administration) Not “operational” Net Income Revenues ‐ Expenses Follow the Money – Find the Value in Knowing Your Financials 7 Copyright 2010 Sigma College of Small Business, Inc.
  • 8. Widgets, Inc. Profit and Loss Statement Income Statement  tracks across a time  Operational  period Earnings Analyze “trends”  for changing  operations Impact of Financial  Decisions Follow the Money – Find the Value in Knowing Your Financials 8 Copyright 2010 Sigma College of Small Business, Inc.
  • 9. Sigma Free Presents… Follow the Money Find the Value in Knowing Your Financials Provided by Sigma College of Small Business, Inc.
  • 10. Ratio Analysis Separates comparison from the number magnitude ‐ Compares “apples to apples” • Liquidity – Analyze ability to meet current obligations • Ratio Trend Analysis – Compare line items with a basis • Total assets or Gross revenue • Return on Investment – Compares result with the assets or investment available • Inventory – Evaluate efficiency in which inventory is managed Follow the Money – Find the Value in Knowing Your Financials 10 Copyright 2010 Sigma College of Small Business, Inc.
  • 11. Widgets, Inc. Ratio Analysis ‐ Liquidity • Working Capital • Current Assets – Current Liabilities • Current Ratio • Current Assets / Current Liabilities • Acid Test or Quick Ratio • (Current Assets – Inventory) / Current Liabilities • Actual asset values go up • Decline in ratios indicate a weaker, more  “leveraged” financial position • Indicators that company is positioned for growth • Equipment purchase • Higher inventory and A/R Follow the Money – Find the Value in Knowing Your Financials 11 Copyright 2010 Sigma College of Small Business, Inc.
  • 12. Widgets, Inc. Ratio Analysis ‐ Performance Decrease in the  relative Gross Margin Result of increased  leverage Return on Assets Net Income / Ave. total Assets Margin Net Income / Sales More assets,  but less income  More efficient  – reduced ROI Turnover inventory management Sales / Ave. total Assets Follow the Money – Find the Value in Knowing Your Financials 12 Copyright 2010 Sigma College of Small Business, Inc.
  • 13. Management Statements • Project and Job Statements – Compare job revenue to job expenses – Determine job profitability • Customer Statements – Compare long term value of cutomers – Track customer type to identify your best markets • Managerial Accounting – Measure the direct costs of products and process – Evaluate and assign overhead – Identify and track improvement efforts Follow the Money – Find the Value in Knowing Your Financials Copyright 2010 Sigma College of Small Business, Inc. 13
  • 14. Sigma College of Small Business • Upcoming SigmaFree Classes Critical Business  – 2/9 – Choosing the Right Advertising Areas – 2/16 – What’s New? Technology and  Strategy and Planning Innovation for Small Business Marketing and Sales • Upcoming Sigma College Course Accounting and  Finance – Marketing and Sales for Small Business Operations and  • Thursdays, 7:30am‐9:30am, 2/11‐3/4, 4 weeks Quality • Wednesdays, 3pm‐5pm, 2/17‐3/10, 4 weeks Leadership and  – Free personal consult Administration – “Flex” schedule – attend either class Technology and  Innovation Dedicated to the Learning Needs of Small Business! Copyright 2010 Sigma College of Small Business, Inc. 14