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2011_Replanning_Your Business
- 2. The 6 Steps 1. Plan properly 2. Monitor financial position 3. Manage cash flow 4. Organize operations 5. Manage growth 6. Plan for transition
- 3. What Do YouWant Out of Your Business? Most business MORE owners want: SALES MORE MORE! PROFIT MORE MORE STAFF CUSTOMERS
- 4. The Slippery Slope Too much work for the owner to do alone Work gets out Hire cheap or untrained of control help Customers get unhappy Can’t make enough money Can’t afford to hire better people Owner spends time putting out fires
- 5. Owner spends timeputting out fires & fixing problems No time for marketing Can’t find or sales time to train people Have to sell at low price No referrals or Can’t make enough repeat customers money to cover bills or grow business
- 6. NOT ENOUGH PROFITABLE • PERHAPS YOUR SALES SYSTEMS STINK CUSTOMERS? NOT ENOUGH • PERHAPS YOUR CUSTOMER SERVICE LOYAL STINKS CUSTOMERS? COMPETING • PERHAPS YOU’RE NOT ANY BETTER THAN ON PRICE YOUR COMPETITION ALONE? LITTLE OR NO • PERHAPS YOUR ORGANIZATIONAL PROFIT? SYSTEMS STINK CAN’T FIND • PERHAPS YOU’RE NOT A GOOD PERSON TO ANY GOOD WORK FOR! HELP?
- 7. What Do YouWant Out of Your Business? I want my business to be: 1. Completely run by management team 2. Organized & Systemized 3. A great place to work that attracts the best employees 4. Built on satisfying loyal customers 5. Makes double the industry average profit 6. Grows my equity and wealth 7. Creates lots of freedom & fun
- 8. Plan Properly Determine • Establish a clear what you want vision • Profit Set goals • Customers aligned • Employees with vision • Market • Tasks to Create achieve action plans goals
- 9. Plan Properly Start the year in high gear Block time to think New product or service ideas New projects New prospects Innovation and adaptation grow a business Plan on paper
- 10. Plan Properly STEP BACK& LOOK AT YOUR BUSINESS Time to touch your customers Year end is a good time to survey customers Service & quality feedback “Is there anything else you need that I can sell you?” Interview your employees Ask for suggestions to improve business They often have insights you don’t
- 11. Plan Properly Dustoff the business plan Review and update your plan or write a new one What’s not working and how to fix it Make use of dates and milestones Growth and new projects may require capital – plan for it
- 12. Plan Properly Lookfor Good Guidance Build a Board of Advisors Your professional team – CPA, Attorney, Insurance Personal coach or mentor SCORE, SBDC, Chamber of Commerce
- 13. Monitor Financial Position Measure where you are Current state of financial statements Package the information so you can see relationships Calculate financial ratios Record industry benchmarks (if available) Create a scorecard Compare results and analyze possible causes of problems Take action
- 14. The Current Stateof Your Financials How often do you get financials? (I/S & B/S) Once per month Once per quarter Once per year How much time do you look at them? None As little as possible 1 hour 2 – 4 hours per month One day per month How happy are you with the quality of your financial statements?
- 15. Package the information GANG BUSTERS CORP PROFIT & LOSS STATEMENT 2008 2009 2010 INCOME GROSS SALES 101,000 115,000 125,000 DISC/RET 1,000 1,000 1,000 NET SALES 100,000 100.0 114,000 100.0 124,000 100.0% COGS 55,000 55.0 65,550 58% 71,875 58.0% GROSS PROFIT 45,000 45.0 48,450 43% 52,125 42.0% EXPENSES: FREIGHT 3,000 3.0 3,000 2.6% 3,000 2.4% ADVERTISING 2,000 2.0 2,000 1.8% 2,000 1.6% WAGES 20,000 20.0 20,000 17.5% 20,000 16.1% TAXES 1,500 1.5 1,500 1.3% 1,500 1.2% BENEFITS 1,500 1.5 1,500 1.3% 1,500 1.2% INSURANCE 2,000 2.0 2,000 1.8% 2,000 1.6% UTILITIES 1,000 1.0 1,000 0.9% 1,000 0.8% RENT 4,000 4.0 4,000 3.5% 4,000 3.2% DEPRECIATION 3,000 3.0 3,000 2.6% 3,000 2.4% PROF.FEES 500 0.5 500 0.4% 500 0.4% OFFICE 100 0.1 100 0.1% 100 0.1% BANK CHGS 500 0.5 500 0.4% 500 0.4% T&E 500 0.5 500 0.4% 500 0.4% DELIVERY 400 0.4 400 0.4% 400 0.3% TOTAL EXPENSE 40,000 40.0 40,000 35.1% 40,000 32.3% NET INCOME 5,000 5.0 8,450 7.4% 12,125 9.8%
- 16. Calculate Financial Ratios 2008 2009 2010 Industry Balance Sheet Ratios: Stability (Staying Power) Current Current Assets / Current Liabilities 1.7 1.1 0.99 1.8 Quick Cash + Accts. Rec. / Current Liabilites 0.8 0.5 0.38 0.8 Debt-to-Net Worth Total Liabilities / Net Worth 1.5 1.4 2.68 1.2 Income Statement Ratios: Profitability ( Earning Power) Gross Margin Gross Profit / Sales 21 20 18 22.2 Net Margin Net Profit Before Tax / Sales 3.5 3 0.2 3.2 Asset Management Ratios: Overall Efficiency Ratios Sales to Assets Sales / Total Assets 2.3 2.3 1.9 2.4 Return on Assets Net Profit Before Tax / Total Assets 8.2 6.9 0.5 6.9 Return on Investment Net Profit Before Tax / Net Worth 20 16.5 2 15.8 Asset Management Ratios: Working Capital Cycle Ratios Inventory Turnover Cost of Goods Sold / Inventory 5.6 8.1 4.2 4.9 Inventory Turn - Days 360 / Inventory Turnover 64 44 85.7 74 Accounts Recievable Turnover Sales / Accounts Recievable 8.9 10 8 8.5 Accounts Recievable Turn - Days 360 / Accts. Rec. Turnover 40 36 45 43 Accounts Payable Turnover Cost of Goods Sold / Accounts Payable 12 10.4 5.6 9.8 Average Payment Period 360 / Accts. Payable Turnover 30 34 64 37
- 17. Create a Scorecard Weekly Scorecard Week Ending: Cash Accounts Recievable Beginning Balance Beginning A/R Payments Invoiced this Week Check Debit Card Ending Balance Ending A/R Weekly Activity Accounts Payable Details Received Beginning A/P Leads Received New Charges this Week Jobs Started Ending A/P Jobs Completed
- 18. Manage Cash Flow Cash Accounts Receivable Inventory
- 19. Manage Cash Flow Advantages of planning ahead Relationship between sales and cash Use cash flow forecast Manage for cash – not profit Fast pay customers – short sales cycles May pass on a sale or “fire” a customer Evaluate pricing
- 20. Cash Flow Forecast Cash Flow Flow Forecast Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week of: Beginning Cash Balance 105 105 105 105 105 Cash Receipts: Estimated Cash in from A/R 1500 Cash In Estimated Cash in from Cash Sales 750 Decrease (Increase) in Savings Miscellaneous 250 Borrowing from Line of Credit 1000 Sub total 3500 0 0 0 0 0 Total Cash Available 3500 105 105 105 105 105 Disbursements: Payroll (Net) 1200 Payroll Taxes 400 Sales Tax Must Pay Rent 750 Purchases for Resale 550 Bank Loan 1 Bank Loan 2 200 Line of Credit Utilities 175 Cash Payments Insurance Pest Control 35 Cell Phone 85 Waste Removal Total Cash Out 3395 0 0 0 0 0 Balance Forward 105 105 105 105 105 105
- 21. Organize Operations SixSigma for small business Map processes on paper Operations or procedure manual Cut costs Solicit bids from vendors Use process map to reduce wasted material, effort & time
- 22. Map Processes onPaper
- 23. Manage Growth Growth(sales) costs money Growth (sales) require additional assets Growth (sales) usually causes decrease in efficiency Financial gap analysis – how much cash do you need
- 24. Income Statement Balance Sheet Assets = Liabilities + Net Sales Worth Net Profit 1. To pay off new assets 2. To pay off debt 3. To pay out to the owners
- 25. Plan For Transition Drivers of Value Organized and well run business Assets not over encumbered with debt History of earnings growth at or exceeding industry Valuation Methods Book value or Adjusted book value Liquidation value Reproduction value Earnings approach
- 26. QUESTIONS? David Oetken, MBA Small Business Development Center 2800 West Broadway Suite 315 Louisville, KY 40211 502-594-3871
Editor's Notes
- #4 When more is your goal you just get busier and more unhappyStressed and feeling out of controlChase bad business and say yes to bad offers, keep bad employees, become blind to the bad reality of your situationBelieve in magic: elusive big client – perfect manager – magical solutionVacation home with architect storyHe asks “what do you want” – size , layout, finishes