The KPI - Cash Flow Modeling and Projections (Series: MBA Shortcut)

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Practical and entertaining education for
attorneys, accountants, business owners
and executives, and investors.
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DISCLAIMER
The material in this webinar is for informational purposes only. It should not be
considered legal, financial or other professional advice. You should consult with an
attorney or other appropriate professional to determine what may be best for your
individual needs. While Financial Poise™ takes reasonable steps to ensure the information
it publishes is accurate, Financial Poise™ makes no guaranty in this regard.
About this PowerPoint: if you are looking at this PowerPoint without the benefit of
listening to the conversation that surrounded it then you are doing yourself a disservice.
This PowerPoint was prepared in contemplation of being viewed in conjunction with
listening to a one hour webinar on the topic
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MEET THE FACULTY
Moderator:
Jonathan Friedland – Sugar Felsenthal Grais & Helsinger
Panelists:
John Levitske – Ankura Consulting Group
Michael Schwarzmann – Independent CRO and Restructuring Advisor
Ken Yager – Newpoint Advisors Corporation
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ABOUT THIS WEBINAR: The KPI- Cash
Flow Modeling and Projections
You can chase a lot of financial measures of your business, but nothing stacks up to cash flow.
Like a boat captain on a rough sea, being able to see what is coming at you financially is
absolutely invaluable.
Cash flow models are the absolute go-to tool for reviewing companies in distress, yet they are
also invaluable to venture capitalist who must manage long range investments as well as fast
growth. This webinar discusses the basic components of a cash flow model, why it is weekly
and not monthly and why 13 weeks is the usual length. This webinar also discusses what type of
data is best for making an efficient and practical cash flow model, as well as best practices for
reporting and pitfalls associated with modeling and balance roll forwards.
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ABOUT THIS SERIES:
MBA Shortcut
“If you don’t know your numbers, you don’t know your business.” This is a common refrain
that is equally applicable to attorney and other consultants who work with businesses.
This webinar series is designed for you if you are a startup founder, business owner, executive,
investor, attorney or consultant who, though not a finance or accounting professional, finds
herself needing to understand finance and accounting. It won’t make you an expert but it will
give you the tools you need to speak with experts in order to get more out of them and it will
provide a solid foundation on which you can build.
Packed with illustrative examples, helpful anecdotes and real-world case studies, this series
teaches you some of the key take things you need to understand about finance and accounting.
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EPISODES IN THIS SERIES
3/7/19 Episode #1:
EBITDA and Other Scary Words
4/4/19 Episode #2:
How to Read a Balance Sheet –And Why You Care!
5/9/19 Episode #3:
The KPI- Cash Flow Modeling and Projections
6/6/19 Episode #4:
Where Did All My Profits Go? Mastering the Concept of Working Capital
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Dates shown are premiere dates.
All webinars will be available
On Demand approximately 4 weeks
after they premiere.

Episode #3:
The KPI- Cash Flow Modeling and
Projections
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INTRODUCTION TO KEY PERFORMANCE
INDICATORS (“KPI”)
a. What is a Key Performance Indicator?
i. A measurable value that demonstrates how effectively company achieves key
business objectives
ii. An actionable “scorecard” for a business to measure strategies & achieve goals
iii. Can help businesses manage, control, and achieve desired business results
iv. May be applied to various facets of business
v. Often used to reflect a business’s most important objectives, not necessarily
every objective
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INDICATORS (“KPI”) (cont’d)
a. What kinds of objectives can KPI be used to measure?
i. Financial goals and successes/failures
ii. Customer metrics
iii. Personnel metrics
iv. Process metrics
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a. Why and when is KPI used to improve performance?
i. Helps to understand where the company is performing well and
where it can improve
i. Management may be blind to improvement opportunities
based on experiences and duration with company; or
ii. Management may hesitate calling out opportunities to
improve due to fear of criticism and blame

a. Why and when is KPI used to improve performance? (con’t)
ii. Allows the company to compare performance to other industry
participants
i. Typically, this is accomplished by benchmarking performance to
public companies, where audited data is available and adjusting the
scale where applicable
iii. Historical performance can also be used to identify changes and
opportunities for improvement

a. Example -
i. A retail children’s clothing turnover in a brick and mortar retailer
is knowable, such that if a company turns its inventory only 2x /
year and the industry average in the segment is 5x-6x/ year, that
helps to identify an area to be investigated
ii. Similarly, if the company has a 7x / year turnover it could help
the company prioritize other areas for improvement

a. Overall, experience helps to understand where deviation is
appropriate
i. I.e. inventory turn for ski jackets is different from inventory turn
for collegiate licensed pullover sweatshirts, even though both are
seasonal outerwear

“Don't be afraid to give up the good to go for the great."
- John D. Rockefeller

KPI AS PART OF OVERALL BUSINESS
STRATEGIES & CONSIDERATIONS
a. KPIs should be incorporated into company’s broader strategy and
understanding of its own performance, and used to measure various aspects of
business not captured by other measurements
b. Other measures of business health and position covered in this series:
i. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
1. Essentially, a company’s net operating income
2. Used to analyze and compare profitability between companies by
eliminating effects of financing and accounting decisions.
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STRATEGIES & CONSIDERATIONS (cont’d)
a. Other measures of business health and position covered in this series:
i. Balance Sheet Analyses
1. Balance sheet tells management & investors how much money
company has, how much it owes in terms of debts, and resulting net
worth (shareholder equity)
2. Presents a snapshot of the Company’s financial conditions at a
specific point in time
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STRATEGIES & CONSIDERATIONS
(cont’d)
ii. Working Capital
1. Total Current Assets - Total Current Liabilities
2. Positive working capital means that company can pay off its
short-term liabilities. Negative working capital means company
currently is unable to meet its short-term liabilities with its
current assets.
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COMMON STEPS TO DEVELOPING &
IMPLEMENTING KPI
a. Set Goals/Objectives
a. Example: increase sales
b. Establish success factors related to goals & objectives
a. Steps to be taken by team members to reach goals
b. Usually takes the form of measurable activity over specified time
frame
c. Example: Increase sales leads 10% in first quarter of year
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COMMON STEPS TO DEVELOPING &
IMPLEMENTING KPI (cont’d)
a. Establish Key Performance Indicators based on success factors
a. Example based on success factor above:
b. KPI related to increasing sales leads: actual % increase or % decrease in
website visits converting to leads for Q1
b. Collect data
c. Calculate results
d. Draw conclusions
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DEVELOPING KPI – BEST PRACTICES &
TIPS
a. KPI should be:
i. Well-defined & quantifiable
ii. Communicated to team members
iii. Related to important goals & metrics
iv. Applicable to Line of Business (“LOB”)
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TIPS (cont’d)
a. Tips for developing KPI
i. Identify appropriate team members to work on KPI
ii. Conduct internal interviews/investigations to develop goals & objectives
iii. SWOT Analysis by team developing KPI
i. Strengths, Weaknesses, Opportunities, Threats
Team may develop SMART goals or objectives to guide KPI:
i. Specific, Measurable, Achievable, Relevant, & Time-bound
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TIPS (cont’d)
a. Expectations for KPIs
i. KPIs are an evolutionary process
ii. What is important today may not be tomorrow
iii. Perfect data may not exist today
1. Start with elements available, build from there
2. Put timelines and projects together to build better data
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TIPS (cont’d)
a. Connecting the dots
i. Metrics should track from somewhere and lead to somewhere
ii. High-level metric should also have related, lower level metrics
tracked by individual, and that some plant, department or division
also tracks
iii. Time period should mean something to users of metrics
iv. Metric must be timely
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TIPS (cont’d)
a. How many KPIs to process
i. Most KPIs end up part of bigger picture or group of KPIs
ii. Humans can only handle or react to so many KPIs
iii. Best rule of thumb: no one person should be responsible for
more than 3 KPIs
iv. Where more than 3 KPIs are necessary, max is often 9 KPIs.
Requires group or multiple responsible parties like a department
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KPI EXAMPLES: FINANCIAL METRICS
a. Profit
i. Simple, but highly relevant
ii. Analyze both gross and net profit margins
b. Cost
i. Measure cost effectiveness of business operations to reduce or manage costs
c. LOB revenue vs. Target
i. Comparison between actual and projected revenues
ii. Tracking discrepancies helps identify how specific departments, or company as a
whole, perform
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(cont’d)
a. Day Sales Outstanding (“DSO”)
i. (Accounts Receivable ÷Total Credit Sales) × Number of days in
time frame examined
ii. Result = DSO
iii. Indicates company’s ability to collect accounts receivable
iv. Lower number = better collections
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(cont’d)
a. Day Payables Outstanding (“DPO”)
i. (Accounts Payable ÷Total Cost of Goods Sold) × Number of days
in time frame examined
ii. Result = DPO
iii. Indicates company’s ability to gain accounts payable credit
iv. Bigger number = better vendor credit
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(cont’d)
a. Days Inventory Outstanding (“DIO”)
i. (Inventory ÷Total Cost of Goods Sold) × Number of days in time
frame examined
ii. Result = DIO
iii. Indicates company’s need to hold inventory
iv. Lower number = better inventory turnover
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KPI EXAMPLES: CASH CYCLE
(AGGREGATING FINANCIAL METRICS)
a. Cash Cycle
i. Measure of working capital converted to a day-based equation
ii. DPO - DSO - DIO = Cash Cycle
iii. Most companies have negative Cash Cycle number
iv. Cash Cycle result indicates gap in total working capital by days,
and how much company needs from outside sources of capital
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“Managers and investors alike must understand that accounting
numbers are the beginning, not the end, of business valuation.”
- Warren Buffett

(cont’d)
a. Sales by Region
i. Can be used to compare sales across regions, identify high
performers and low performers, and may provide insight as to
how low performers can improve in specific regions
b. LOB Expenses vs. Budget
i. Comparison of actual overhead costs against budget
ii. Aids in developing future budgets
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KPI EXAMPLES: CUSTOMER METRICS
a. Customer Lifetime Value (“CLV”)
a. Determination of optimal customers
b. Examines value of long-time customers to company to narrow targets for future
customers likely to form long-term relationships with company
b. Customer Acquisition Cost (“CAC”)
a. Total Acquisition Costs ÷ No. New Customers over specific time frame
b. Result = CAC
c. Important metric to determine effectiveness of marketing campaigns
c. Customer Satisfaction & Retention
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(cont’d)
a. Net Promoter Score (“NPS”)
i. Measures likelihood customers will refer others to company
ii. May be determined by quarterly customer satisfaction survey incorporating
question relating to likelihood of referring contacts/friends to the company
b. Number of Customers
i. Measuring gains and losses of total customers aids determining ability to
meet customer needs
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(cont’d)
c. Churn Rate
i. Measures % of customers that fail to make repeat purchases or discontinue
service during specific period
ii. (No. customers lost during Period) ÷ (No. customers at beginning of
Period) = (Customer Churn Rate).
d. Contact volume by channel
i. Tracks customer support requests by phone, email, web portal, etc. to
determine customers’ preferred method of seeking support
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KPI EXAMPLES: PROCESS METRICS
a. Customer Support Tickets
i. Analysis of number of customer support tickets opened and resolved in specified
time period
ii. Measures customer service capabilities, strengths, & weaknesses
b. Percentage of Product Defects
i. No. defective units during time period ÷ total units produced during time period
ii. Lower is better!
iii. Can identify process issues if number is high
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KPI EXAMPLES: PROCESS METRICS
(cont’d)
a. LOB Efficiency Measure
i. Measured differently depending on line of business
Example: manufacturing
i. No. units produced per hour measured against % time plant is
running
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KPI EXAMPLES: PERSONNEL METRICS
a. Employee Turnover Rate (“ETR”)
i. No. Employees exiting during time period ÷ average no. employees
ii. Indicates company’s ability to retain talent, determine steps to reducing turnover
for future if ETR is high
b. Percentage response to open positions
i. High % of qualified applicants may indicate desirability of company to job seekers
ii. Low % may indicate issues with employee benefits offerings, salary, etc.
c. Employee satisfaction
i. Internal employee satisfaction surveys may indicate areas for improvement or
continuance/discontinuance of employee programs or other benefits
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KPI EXAMPLES: PERSONNEL METRICS
(cont’d)
a. Retirement rate
a. Key to developing strategic workforce plan with aging workforce
b. High retirement rates aid in developing hiring strategies
b. Internal promotion vs. external hires
a. Measurement of internal promotion vs. external hires when vacancies
open
b. Effective means of building succession plan
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“Erroneous assumptions can be disastrous.”
- Peter F. Drucker

COMMON KPI PITFALLS
a. Adopting commonly-held business practices instead of developing those
specific to a business
b. Recency bias – tending to give weight to most recent information
gathered/learned instead of taking broader history into account
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COMMON KPI PITFALLS (cont’d)
a. Reliance on intuition/anecdotal evidence as opposed to measured data
b. Confusing lagging indicators (easily measured outputs) with leading indicators
(hard-to-measure inputs)
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ABOUT THE FACULTY
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Jonathan Friedland – jfriedland@sfgh.com
Jonathan Friedland, a senior partner with Sugar Felsenthal Grais & Helsinger, LLP, views his
job simply: to make money for clients whenever possible and to protect their interests at every
turn. Licensed in four states, Jonathan’s transactional work focusses on representing private
funds and other owners of private businesses, and the businesses they own. He regularly
advises on M&A activities, structuring new ventures and restructuring old ones, and on other
commercial relationships. Jonathan is rated AV® Preeminent™ by Martindale-Hubbell, 10/10
by AVVO, and enjoys several other similar distinctions. Jonathan graduated from the State
University of New York at Albany, magna cum laude (in three years) and from the University of
Pennsylvania Law School. He clerked for a federal judge before entering private practice and
served for several years as an Adjunct Professor of Strategic Management at the University of
Chicago’s Graduate School of Business. Jonathan is lead author and editor of several
significant treatises, several chapters in other treatises, and scores of articles on law and
business.
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John Levitske – John.Levitske@ankura.com
John Levitske is a Senior Managing Director at Ankura, focused on business valuation and complex financial
disputes. He has served as a senior advisor to companies, owners, executives, and legal counsel in business
disputes, shareholder disputes, and M&A transactions regarding issues of valuation, finance, damages, and
accounting. John is based in Chicago.
With more than two decades of Big Four public accounting and international consulting experience, John is
seasoned in business valuation, financial analysis, economic damage quantification, forensic accounting,
retrospective solvency analysis, and post-merger & acquisition accounting calculations. He handles appraisals
of healthy and distressed companies for buyouts of shareholders and creditors, transaction planning, estate
and gift taxation, financial accounting, bankruptcy proceedings, and litigation disputes.
John has provided consulting and expert witness testimony services and has served as a neutral party in
arbitration and mediation. He has testified as an expert witness in the US and Europe in depositions,
hearings, bench and jury court trials, and domestic and international arbitration (ICC, SCC, AAA, JAMS,
FINRA, and ad hoc arbitrations) and has served as a neutral arbitrator. In addition, he has rendered binding
decisions on disputed matters.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/john-levitske/
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Michael Schwarzmann – michaelschwarzmann@yahoo.com
Michael Schwarzmann has over 20 years’ experience helping identify opportunities to create value for his
clients. I have extensive experience working with established companies when they encounter financial
difficulties by assisting them in developing solutions to address short term cash needs and longer term
profitability. My process includes helping to identify cost savings and value capture scenarios by analyzing
historical financial performance along with current operations and projecting optimizing strategies. Utilizing
weekly and monthly cash flow statements, budgets, and forecasts, I utilize a focused, data driven approach to
identifying opportunities to increase company profitability. Through a broad review of financial, operational
and strategic performance, I help guide companies to increased profitability. Working across the
organization, vertically and horizontally, uncovers additional solutions and generates greater buy-in of the
goals, objectives and action plan, all of which are critical to maximize the impact of proposed changes. I
utilize my legal knowledge to seamlessly work with counsel to identify and address legal issues in a more cost
effective manner.
I have guided the development and evaluation of business plans and formulated successful strategies to
preserve or improve asset values. I am a consensus builder. Industry experience includes: health care,
manufacturing, agricultural, construction, restaurants and franchising, energy and travel.
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Ken Yager – KYager@newpointadvisors.us
Ken has 25 years of executive leadership experience in stakeholder communication. Mr. Yager regularly
takes on profit and loss and risk-management responsibility for cash-constrained companies in growth,
leveraged-buyout and turnaround situations. He also has successfully worked on implementing dozens of
initiatives involving, operations and project management, team building, marketing, and sales and joint-
venture management. He is a fierce advocate for capital preservation and saving jobs.
Ken has worked with clients in a variety of industries in over 150 engagements. Prior to Newpoint
Advisors, Mr. Yager was a Principal at MorrisAnderson, a national turnaround management firm focused
on assisting companies deal with severe liquidity issues and insolvency. Mr. Yager previously held
positions at Newpoint Ventures, a company dedicated to revitalizing middle-market companies through
new management and the introduction of low-cost employee leveraging tools; Equity Sponsor Business
Development at Bank of America; The Assurance practice of Coopers & Lybrand and the Capital Markets
Division of Salomon Brothers.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/ken-yager/
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IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily
for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education.
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