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Business Basics –
Plans, Financials, and No-no’s
Baraga County Memorial Hospital
July 1, 2014
12:00 Noon – 1:00 P.M.
Prese...
You need a business plan if:
• You’re running a business (keeping on track)
• You need money (Most require some sort of pl...
Entrepreneurs are relentless “do-er’s”
BUT
A Business Plan is an essential tool to enable:
DeltaProAdvisor.com
Part One - ...
• Forces you to think confront and answer questions
that might not be raised in “doing”
• Promotes discipline – test the r...
DeltaProAdvisor.com
1. Careful Thought
Test Reality Increased
Knowledge
Boost
Confidence
Process to assure success
No shor...
A business plan defines the venture not only for
the entrepreneur, but also for “significant others”
• The Management Team...
• A clear and consistent snapshot of the organization’s
objective from the beginning
• Provides clarity of purpose
• The s...
A business plan helps to avoid the dangerous trap
of confusing activity with progress
It is a written benchmark from which...
• A well formulated concept that will form the
cornerstone of the business
• Size of the market
• Take time to research yo...
• Current Business Status / Position
• Legal form of operation
• When it was formed
• Principal owners
• Key management st...
In general, you should:
• Keep the plan reasonable in length
• Include an Executive Summary
• Put together at least two ye...
In general, you should not:
• Include all kinds of jargon, keep it plain, simple,
and understandable
• Come across as a va...
Above all, be able to back up your statements
You’re selling to a tough crowd!
DeltaProAdvisor.com
Plan Do’s and Don’ts
“I don’t think business plans are completely useless,
just mostly so.”
DeltaProAdvisor.com
Business Plans - The Dark Side
...
The Dark Side (Part II)
Planning is guessing
“When you turn guesses into plans, you enter a
danger zone. Plans let the pas...
DeltaProAdvisor.com
Business Plans – Where is the Truth?
Detailed
Business
Plan
Why Waste
The Time?
• Long winded narrativ...
The Financial Statements
•Balance Sheet
•Shows assets, liabilities & equity of the company
•Current vs. Long Term
•P & L (...
Who Uses Financial Statements?
•Business Owners & Managers
•Lenders
•Investors
•Competitors
•Entrepreneurs
DeltaProAdvisor...
The Financial Statements
•Balance Sheet
•Profit and Loss
•Statement of Cash Flows
DeltaProAdvisor.com
They are not standal...
Introducing the Balance Sheet
A company’s financial position or health is shown on
the balance sheet, also called a statem...
Introducing the Balance Sheet
The Five Basic Account Groups
1. Assets – economic resources that will benefit the
business ...
Introducing the Income Statement
•The income statement shows the performance of a
business over a period of time
•Other na...
Introducing the Income Statement
The income statement format looks like this:
Sales
less cost of goods sold
Gross Profit
l...
Introducing the Cash Flow
Statement
•The cash flow statement only deals with cash activity
•It should be used as a plannin...
Purpose of the Cash Flow
Statement
•Shows the relationship between net income
and changes in the cash balance
•Assists fut...
Are Cash and
Profit Different?
Definitely!
•Cash flow is the money that goes in and out of
a company’s operations, financi...
Example 1 – Where is
The Cash???
DeltaProAdvisor.com
Example 1 – Where is
The Cash???
DeltaProAdvisor.com
Example 2 – Where is
The Profit???
DeltaProAdvisor.com
Depreciation – a non cash expense
Tying the knot
and closing
the loop
Add Back
Cash Out – Principal Amount
Tying the knot
and closing
the loop
Prepaid lump sum
Critical Performance Factors
Financial Ratios
Ways to let accounting information
drive decision making criteria:
Critical ...
Critical Performance Factors
Current Ratio
Current Ratio
Used to test the short term debt paying ability of a
company. Cur...
Critical Performance Factors
Current Ratio
General rule is that ratio should be around 2.0
Why? Because liabilities are pr...
Critical Performance Factors
Current Ratio
Example
Current Ratio = Current Assets / Current Liabilities
= $26,000 / $15,00...
Critical Performance Factors
Average Collection Period
Average Collection Period
Is also called Days Sales Uncollected
Thi...
Critical Performance Factors
Average Collection Period
Example
Days = Accounts Receivable / Sales * 365
= $5,000 / $50,000...
Critical Performance Factors
Average Collection Period
Warning – watch for distribution of aging
A/R. Things could be wors...
Eight Common Tax Mistakes
Small Businesses Make
1. Not paying your quarterly taxes
2. Not keeping track of all your expens...
1099 Employees
A few of these facts suggest Independent Contractor
1. Set own working hours
2. Work part time
3. Work for ...
•Never (ever) let the person who writes
the checks reconcile the bank account.
That’s like giving them keys to the vault.
...
•Watch your checks. The #1 way people
get ripped off because office managers
pay their personal bill with a company
check ...
DeltaProAdvisor.com
•Consider outsource of payroll and
make sure the payroll provider requires
an owner signature on any p...
Thank You!!!
Any Questions?
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Business Basics - Plans, Financials, and No-no's

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A quick paced overview of Business Plans (or not), financial statements and typical small business mistakes.

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Business Basics - Plans, Financials, and No-no's

  1. 1. Business Basics – Plans, Financials, and No-no’s Baraga County Memorial Hospital July 1, 2014 12:00 Noon – 1:00 P.M. Presented by: Ron Miaso DeltaProAdvisor.com
  2. 2. You need a business plan if: • You’re running a business (keeping on track) • You need money (Most require some sort of plan) • Many people are involved (keep everyone on the same page) • You are looking for investors • You are selling a business (business valuation) DeltaProAdvisor.com Who Needs a Plan
  3. 3. Entrepreneurs are relentless “do-er’s” BUT A Business Plan is an essential tool to enable: DeltaProAdvisor.com Part One - Business Planning Forcing Hard Thinking 1. Careful Thought 2. Clarity of Purpose 3. Benchmark to measure progress
  4. 4. • Forces you to think confront and answer questions that might not be raised in “doing” • Promotes discipline – test the reality of “irrational exuberance” DeltaProAdvisor.com 1. Careful Thought At a speech before the American Enterprise Institute in 1996, Mr. Greenspan talked about the stock market and how he feared investor enthusiasm pushed prices to levels that weren’t a true reflection of economic fundamentals. Former Fed Chairman Alan Greenspan coined “irrational exuberance”
  5. 5. DeltaProAdvisor.com 1. Careful Thought Test Reality Increased Knowledge Boost Confidence Process to assure success No short cuts! Takes time. Owner prepares. •Volumes •Competition •Your Product •Research •Ask Questions •Better Plan •More Buy In
  6. 6. A business plan defines the venture not only for the entrepreneur, but also for “significant others” • The Management Team • The Funders • Banks • Credit unions • Crowd funders • Grant organizations • Lawyers and accountants DeltaProAdvisor.com 2. Clarity of Purpose
  7. 7. • A clear and consistent snapshot of the organization’s objective from the beginning • Provides clarity of purpose • The starting point from which changes can be made DeltaProAdvisor.com 2. Clarity of Purpose (con’t) Albert Soady tells us, “If you don’t know where to start, go back to the beginning.”
  8. 8. A business plan helps to avoid the dangerous trap of confusing activity with progress It is a written benchmark from which to measure how you’re doing As goals are achieved, confidence is built and new goals are identified (or old ones changed) DeltaProAdvisor.com 3. Benchmark to Measure Progress Summary – Prospective investors need to be assured that the venture has been researched and analyzed
  9. 9. • A well formulated concept that will form the cornerstone of the business • Size of the market • Take time to research your competition • Who are they? • How good are they? • How can you position yourself to offer a different product or service? • Who uses their products or services? DeltaProAdvisor.com Plan Basics
  10. 10. • Current Business Status / Position • Legal form of operation • When it was formed • Principal owners • Key management staff • Financials • Projected profit and loss • Balance sheet • Cash flows • Sources and uses of funds DeltaProAdvisor.com Plan Basics - Continued
  11. 11. In general, you should: • Keep the plan reasonable in length • Include an Executive Summary • Put together at least two years of projected income and expenses • Estimate sales potential – hard evidence • Include Risks and Opportunities • Involve outside assistance as needed • Plan an elevator pitch and longer oral presentation from your plan DeltaProAdvisor.com Plan Do’s and Don’ts
  12. 12. In general, you should not: • Include all kinds of jargon, keep it plain, simple, and understandable • Come across as a vague or fuzzy thinker, do not be looked upon as a “dreamer” instead of “doer” • Be everything to everyone, instead concentrate on your core strengths • Discuss phantom members of the team “unnamed people who will join later” DeltaProAdvisor.com Plan Do’s and Don’ts
  13. 13. Above all, be able to back up your statements You’re selling to a tough crowd! DeltaProAdvisor.com Plan Do’s and Don’ts
  14. 14. “I don’t think business plans are completely useless, just mostly so.” DeltaProAdvisor.com Business Plans - The Dark Side Dharmesh Shah’s Take Dharmesh is co-founder and CTO of HubSpot. HubSpot provides inbound marketing software that helps businesses attract, engage and delight customers on the web. The company, based in Cambridge, Massachusetts has over 10,000 customers and is a two-time member of the Inc. 500. 1. Business plans are energy depleting exercises 2. You should be committed to your business, not your business plan” “You’re much better off spending time and energy talking to your customers and making the product better” 3. Business plans are written in the waterfall method, and you need to be agile 4. Nobody will read your business plan 5. It’s a work of fiction 6. Write a blog, not a business plan
  15. 15. The Dark Side (Part II) Planning is guessing “When you turn guesses into plans, you enter a danger zone. Plans let the past drive the future. They put blinders on you. ‘This is where we’re going because, well, that’s where we said we were going’. And that’s the problem: Plans are inconsistent with improvisation.” “Now this isn’t to say you shouldn't think about the future or contemplate how you might attack upcoming obstacles. That’s a worthwhile exercise. Just don’t Feel you need to write it down or obsess about it.”
  16. 16. DeltaProAdvisor.com Business Plans – Where is the Truth? Detailed Business Plan Why Waste The Time? • Long winded narrative • Pie in the sky • Ten year plans • Time consuming • Understand the financials • Help to develop the “pitch” • Involve key players • Sometimes required
  17. 17. The Financial Statements •Balance Sheet •Shows assets, liabilities & equity of the company •Current vs. Long Term •P & L (Income Statement) •Shows the performance of a business over a period of time (Monthly, Quarterly, Annually) •Statement of Cash Flows •Danger! Profit is not Cash DeltaProAdvisor.com
  18. 18. Who Uses Financial Statements? •Business Owners & Managers •Lenders •Investors •Competitors •Entrepreneurs DeltaProAdvisor.com
  19. 19. The Financial Statements •Balance Sheet •Profit and Loss •Statement of Cash Flows DeltaProAdvisor.com They are not standalone, they all tie together
  20. 20. Introducing the Balance Sheet A company’s financial position or health is shown on the balance sheet, also called a statement of financial position. Important! - The balance sheet shows the businesses financial position on a particular date. The balance sheet relationship is: Assets = Liabilities + Owners Equity DeltaProAdvisor.com
  21. 21. Introducing the Balance Sheet The Five Basic Account Groups 1. Assets – economic resources that will benefit the business in the future 2. Liabilities – a debt to the business 3. Owner’s Equity – the owner’s claim to the assets of the business 4. Revenues – the increase in owner’s equity created by delivering goods and services to customers 5. Expenses – use up assets or create liabilities and decrease owner’s equity DeltaProAdvisor.com Things You Own Things You Owe What’s Left Over!
  22. 22. Introducing the Income Statement •The income statement shows the performance of a business over a period of time •Other names are profit and loss statement (P&L) or statement of operations The basic formula is Revenues – Expenses = Income DeltaProAdvisor.com
  23. 23. Introducing the Income Statement The income statement format looks like this: Sales less cost of goods sold Gross Profit less operating expenses (salaries, utilities, insurance, depreciation, freight, etc.) Operating Income (Earnings Before Income Taxes) less income taxes Net Income DeltaProAdvisor.com
  24. 24. Introducing the Cash Flow Statement •The cash flow statement only deals with cash activity •It should be used as a planning tool to determine when and if additional cash is needed, if expansions are affordable, and “can we pay the bills? •It may be a little more difficult to understand •It should be used as a management tool DeltaProAdvisor.com
  25. 25. Purpose of the Cash Flow Statement •Shows the relationship between net income and changes in the cash balance •Assists future cash projections •Shows the owner / manager how cash is generated •Ultimately will show if a company can pay bills, interest, dividends, etc. DeltaProAdvisor.com Starting Point
  26. 26. Are Cash and Profit Different? Definitely! •Cash flow is the money that goes in and out of a company’s operations, financing and investing •Profit is what remains from sales after all the firms expenses are subtracted (cash and non cash alike) •Cash flow is more important to a small business •Companies can make a profit but not be able to pay their bills and stay in business •Not recognizing this difference is one of the biggest mistakes a small business can make – Where is the Money? DeltaProAdvisor.com
  27. 27. Example 1 – Where is The Cash??? DeltaProAdvisor.com
  28. 28. Example 1 – Where is The Cash??? DeltaProAdvisor.com
  29. 29. Example 2 – Where is The Profit??? DeltaProAdvisor.com Depreciation – a non cash expense
  30. 30. Tying the knot and closing the loop Add Back Cash Out – Principal Amount
  31. 31. Tying the knot and closing the loop Prepaid lump sum
  32. 32. Critical Performance Factors Financial Ratios Ways to let accounting information drive decision making criteria: Critical Performance Factors Or Financial Ratios Ratios provide a statistical profile of a business in comparison to similar businesses DeltaProAdvisor.com
  33. 33. Critical Performance Factors Current Ratio Current Ratio Used to test the short term debt paying ability of a company. Current assets and current liabilities are those which will be available or due within twelve months. Does your business have enough current assets to meet your current debts? What is the margin of safety? Current Ratio = Total Current Assets / Total Current Liabilities DeltaProAdvisor.com
  34. 34. Critical Performance Factors Current Ratio General rule is that ratio should be around 2.0 Why? Because liabilities are probably all good, but not all receivables may be collected and inventory may get old and not be saleable, shrinkage, damaged, etc. If the ratio was less than 1.0, ability to pay short Term debts would be in doubt. Creditors like larger numbers, but there are other considerations. DeltaProAdvisor.com
  35. 35. Critical Performance Factors Current Ratio Example Current Ratio = Current Assets / Current Liabilities = $26,000 / $15,000 = 1.73 Question (True or False): Should this business be OK? Analysis: Company should be in no danger of not being able to pay it’s short term debts. DeltaProAdvisor.com
  36. 36. Critical Performance Factors Average Collection Period Average Collection Period Is also called Days Sales Uncollected This measures how quickly you can turn Accounts Receivable into cash Days = Accounts Receivable / Sales * 365 Goal is to have this not exceed credit terms by 1 1/3. DeltaProAdvisor.com
  37. 37. Critical Performance Factors Average Collection Period Example Days = Accounts Receivable / Sales * 365 = $5,000 / $50,000 * 365 = 36.5 days Goal is to have this not exceed credit terms by 1 1/3. So if credit is normally 30 days, this is good. DeltaProAdvisor.com
  38. 38. Critical Performance Factors Average Collection Period Warning – watch for distribution of aging A/R. Things could be worse than you think. 30 Days 60 Days 90 Days 120 Days $ Trouble! DeltaProAdvisor.com
  39. 39. Eight Common Tax Mistakes Small Businesses Make 1. Not paying your quarterly taxes 2. Not keeping track of all your expenses 3. Not taking the Home Office deduction 4. Mixing equipment & supplies 5. Not sending 1099’s 6. Over deducting your gifts 7. Choosing the wrong legal entity 8. Mixing personal and business DeltaProAdvisor.com
  40. 40. 1099 Employees A few of these facts suggest Independent Contractor 1. Set own working hours 2. Work part time 3. Work for more than one firm 4. Realize a profit or loss from the activities 5. Perform work somewhere other than on an employers premises 6. Work without frequent oversight - IRS Revenue ruling 87-41 (20 factors – 3 Categories) - Form SS-8 However! DeltaProAdvisor.com Includes the contractors ability to:
  41. 41. •Never (ever) let the person who writes the checks reconcile the bank account. That’s like giving them keys to the vault. •Have a copy of your bank account sent to the owner directly, preferably at home, and review all checks and payments. Make marks and ??? ticks – show them you are really looking. Make notes like What? Pls Explain? Who wanted this? Let’s Internal Controls DeltaProAdvisor.com
  42. 42. •Watch your checks. The #1 way people get ripped off because office managers pay their personal bill with a company check – or a company credit card. • Ultimate - Separate duties for every transaction into three separate people: approval (owner/manager), record keeping (bookkeeper) and reconciliation (accountant). •Watch for unusual items in COGS – the dumping ground for much that’s bad! Internal Controls (Con’t) DeltaProAdvisor.com
  43. 43. DeltaProAdvisor.com •Consider outsource of payroll and make sure the payroll provider requires an owner signature on any payroll changes. •Warning - if the bookkeeper insists on doing payroll themselves. Or never wants vacation time off. May be more than dedication! Internal Controls (Con’t)
  44. 44. Thank You!!! Any Questions?

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