Pyxis Finance 3 3 06


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How to make your books really cook! An overview of financial measures.

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  • Thank Mitch, set session objective, review handout Inspiration Sage
  • Pyxis Finance 3 3 06

    1. 1. “ A Recipe for your Financial Measures” Make Your Books Really Cook ! Greg Pashke, CMC Pashke Consulting
    2. 2. Measure To Manage <ul><li>“ You can’t manage something that you can’t measure .” </li></ul><ul><ul><ul><li>- Ken Rau </li></ul></ul></ul>
    3. 3. Caveat #1: Data Overload (Too Much of a Bad Thing) <ul><li>“ We are glutted with data and yet there is a shortage of wisdom.” </li></ul><ul><li>-Joan Halifax </li></ul>
    4. 4. A FINANCIAL MEASURES RECIPE: “The Basic Ingredients” <ul><li>Stir in your Financial Statements </li></ul><ul><li>Add select operational unit data </li></ul><ul><li>Blend-in industry data </li></ul><ul><li>Mix with “analytical” ingredients (the “ BAM ”) </li></ul><ul><li>Sauté with flair, dare & care </li></ul><ul><li>Garnish & Serve </li></ul>
    5. 5. Count What Counts <ul><li>“ Not everything that can be counted counts, and not everything that counts can be counted.” </li></ul><ul><ul><ul><li>- Albert Einstein </li></ul></ul></ul>
    6. 6. FINANCIAL STATEMENTS <ul><li>Balance Sheet (the goal posts) </li></ul><ul><li>Assets = Liab. + Equity </li></ul><ul><li>Income Statement (the ground covered) </li></ul><ul><li>Revenues – Expenses = Profit </li></ul><ul><li>Cash Flows (life force) </li></ul>
    7. 7. FINANCIAL STATEMENTS <ul><li>Not just for CPA’s and Bankers </li></ul><ul><li>Not mysterious documents </li></ul><ul><li>The statements flow logically between each other </li></ul><ul><li>Accounting is the “language of business”. Become more fluent! </li></ul>
    8. 8. Caveat #2: Too Much Focus (people are creative reactors) <ul><li>“ Show me how you’ll measure me and I’ll show you how I’ll behave!&quot; </li></ul><ul><li>-Eli Goldratt </li></ul>
    9. 9. Measure Up <ul><li>“ Our theories determine what we measure.” </li></ul><ul><ul><ul><li>- Albert Einstein </li></ul></ul></ul>
    10. 10. FINANCIAL MEASUREMENT TOOLS: ”Analytical Ingredients” <ul><li>Common-Size those financials! (The Power of Percentages) </li></ul><ul><li>Ratios (levered views) </li></ul><ul><li>Graphs (pictures that relate) </li></ul><ul><li>Break-Even Analysis (sets your minimum sales target) </li></ul><ul><li>Activity-Based Costing (manage activities) </li></ul><ul><li>Executive Dashboards (focus, focus, focus) </li></ul>
    11. 11. Reflection on Effort <ul><li>“ You miss 100% of the shots you never take.” </li></ul><ul><li>- Wayne Gretzky </li></ul>
    12. 12. Percentages & Ratios <ul><li>Basis of comparison </li></ul><ul><li>Compare your trends over time </li></ul><ul><li>Compare to industry averages </li></ul><ul><li>Use with budgets and forecasts </li></ul>
    13. 13. Percentages & Ratios: Examples <ul><li>Sample Company & Industry % </li></ul><ul><li>Some ratio definitions </li></ul><ul><li>Some ratio groupings </li></ul>
    14. 14. Graphs: Examples <ul><li>Focus, Focus, Focus </li></ul><ul><li>Experiment with formats </li></ul><ul><li>Compare your trends over time </li></ul><ul><li>Compare to industry averages </li></ul><ul><li>Use with budgets and forecasts </li></ul>
    15. 15. Double-click here to end the slideshow.
    16. 16. Percentages, Ratios & Graphs : Group Thoughts <ul><li>Sharing among Pyxis Group Members </li></ul>
    17. 17. Caveat #3: Don’t Get in a Rut <ul><li>“ The Platypus and Classification.” </li></ul>(we tend to see what we’ve always seen)
    18. 18. Break-Even Analysis <ul><li>Identify Your Cost Structure </li></ul><ul><ul><li>Variable Costs & % (Contribution Margin) </li></ul></ul><ul><ul><li>Fixed Costs (vary with time, not production) </li></ul></ul><ul><li>Understand Implications: </li></ul><ul><ul><li>Low Variable & High Fixed Costs </li></ul></ul><ul><ul><li>High Variable & Low Fixed Costs </li></ul></ul>
    19. 19. Break-Even Analysis Example <ul><li>George W. Bush Action Dolls: </li></ul><ul><ul><li>Sell for $10 each </li></ul></ul><ul><ul><li>Cost $6 each </li></ul></ul><ul><ul><li>Gross Profit each $4 </li></ul></ul><ul><ul><li>Monthly fixed costs $50,000 </li></ul></ul><ul><ul><li>How many times do we need to throw $4 in a bucket to get $50,000 (12,500 is our break-even units) </li></ul></ul>
    20. 20. Break-Even Analysis Example <ul><li>Profit Sensitivity: </li></ul><ul><ul><li>What happens if we sell 17,500 dolls per month? </li></ul></ul><ul><ul><li>(5,000 above B/E: $4 X 5,000 = 20,000) </li></ul></ul><ul><li>Cost Behavior </li></ul><ul><ul><li>Fixed (vary with time) </li></ul></ul><ul><ul><li>Variable (vary with volume) </li></ul></ul><ul><ul><li>Step (vary in stages: new shift foreman) </li></ul></ul>
    21. 21. Break-Even: Dollars Analysis <ul><li>Variable Cost as % of Sales = 40% </li></ul><ul><li>Monthly Fixed Costs = $60,000 </li></ul><ul><li>Break-Even Sales $: </li></ul><ul><ul><li>$60,000/(1-.40) or $100,000 </li></ul></ul><ul><ul><ul><li>Sales $100,000 </li></ul></ul></ul><ul><ul><ul><li>Less variable of $40,000 (40% of $100,000) </li></ul></ul></ul><ul><ul><ul><li>= Gross Margin $60,000 </li></ul></ul></ul><ul><ul><ul><li>Less fixed of $60,000 = $0 profit </li></ul></ul></ul>
    22. 22. Break-Even Analysis: Group Thoughts <ul><li>Sharing among Pyxis Group Members </li></ul>
    23. 23. Caveat #4: Keep Looking (Don’t Miss the Obvious)
    24. 24. Activity Based Costing <ul><li>Start with traditional expenses (resources) </li></ul><ul><li>Trace expenses to activities that consume resources </li></ul><ul><li>Then focus on products/services that consume activities </li></ul>
    25. 25. Activity Based Costing <ul><li>Alternate Cost Views: </li></ul><ul><li>Costs by function </li></ul><ul><li>Costs by behavior </li></ul><ul><li>Costs by activities </li></ul><ul><li>Costs by products </li></ul>
    26. 26. Activity Based Costing : Group Thoughts <ul><li>Sharing among Pyxis Group Members </li></ul>
    27. 27. Caveat #5: Ignorance is Bliss (things we don’t want to know) “ What bankers might know about you.” “ How spam or sausage is made.”
    28. 28. Executive Dashboards <ul><li>Focus is the key (the vital few) </li></ul><ul><li>Simplicity rules </li></ul><ul><li>Under 10 metrics </li></ul><ul><li>Seek Balance of metrics (Balanced Scorecard) </li></ul><ul><li>Make it a religion </li></ul><ul><li>Develop a format that works (mix it up with graphs and numbers) </li></ul><ul><li>Color code for emphasis </li></ul>
    29. 29. Executive Dashboard: Examples of Measures <ul><li>Sales to date </li></ul><ul><li>Payroll to date </li></ul><ul><li>Average sale per order </li></ul><ul><li>Work-in-process </li></ul><ul><li># of quotations </li></ul><ul><li>Sales per square foot </li></ul><ul><li>Internet sales dollars ($) </li></ul><ul><li>% customer repeat sales </li></ul>
    30. 30. Executive Dashboard Examples
    31. 33. Sample Dashboard: PrintRite
    32. 34. Executive Dashboards: Group Thoughts <ul><li>Sharing among Pyxis Group Members </li></ul>
    33. 35. Measure This <ul><li>“ It is much easier to make measurements than to know exactly what you are measuring.” </li></ul><ul><ul><ul><li>- J.W.N. Sullivan 1886-1937 </li></ul></ul></ul>
    34. 36. FINANCIAL MEASURES: Why Do Them? <ul><li>A set of “tools” to run your business </li></ul><ul><li>To keep score & drive performance </li></ul><ul><li>To improve internal & external communication </li></ul><ul><li>Thoughts from the Pyxis Group CEO’s </li></ul>
    35. 37. Build Your Tool Set <ul><li>“ If all you have is a hammer, every problem looks like a nail .” </li></ul><ul><li>-   Ralph Waldo Emerson </li></ul>
    36. 38. Motivation <ul><li>“ Success is not the result of spontaneous combustion. You must set yourself on fire” </li></ul><ul><li>-Chaim Yudowsky </li></ul>
    37. 39. Make Your Books Really Cook ! <ul><li>&quot; Make [food] simple and let things taste of what they are.&quot; </li></ul><ul><li>-Curnonsky </li></ul>
    38. 40. Contact Information <ul><li>Pashke Consulting </li></ul><ul><li>Greg Pashke </li></ul><ul><li>772-528-3871 </li></ul><ul><li>[email_address] </li></ul>