Business Acumen - Ken Flamer
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* Understand the financial components of business * Identify the levers that affect profitability * Relate your personal finances to business finances * Make more profitable decisions
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Business Acumen - Ken Flamer
- 2. Ken Flamer Leadership Development Host for today kflamer@gmail.com 818-915-5525
- 3. • Understand the financial components of business • Identify the levers that affect profitability • Relate your personal finances to business finances • Make more profitable decisions After this course you should:
- 5. Business Acumen What is it?
- 6. Business Acumen What is it?Keenness and Quickness in understanding and dealing with a business situation in a manner that is likely to lead to a good outcome.
- 7. Improve Profitability Business Acumen How? Making good decisions
- 8. How does the board look at the company? Company View Business Acumen Bottom line
- 9. How does the CEO see the store as a unit? Business Acumen Store as a unit Talent and the P&L
- 10. Series of numbers What line item does your role impact the most?
- 12. What is revenue? Business Acumen
- 13. What is margin? Business Acumen Selling price minus purchase price
- 14. What effects margin? Business Acumen Discounting Obsolescence Returns Incorrect Stock Position Coupons Damaged Gear Shrink Competition . . . and more
- 15. What does this stand for? SG&A Business Acumen
- 16. Selling, General & Administrative SG&A Business Acumen Payroll T & E Marketing Rent &Utilities Supplies Hardware
- 17. Profit Business Acumen Revenue minus expenses - EBITDA
- 18. What is wealth? More passive income than expenses
- 20. What is your personal revenue? Business Acumen Salary, Bonus, Passive Income
- 21. What is your personal margin? Business Acumen Wages minus costs associated with earning them
- 22. What is your personal SG&A? Business Acumen Rent, “workers,” T&E, utilities, food
- 23. What is your personal profit? Business Acumen Savings, investments, money not needed for 60 days
- 24. What happens if you spend every dime you make? What happens if you don’t spend any money (besides on essentials)? Long-term vs. Short-term Business Acumen
- 25. No cash, no savings, miss opportunities, no long-term prospects No growth, old equipment, appearance is poor, no long-term prospects Long-term vs. Short-term Business Acumen
- 26. How do we increase revenue? Business Acumen
- 27. More customers
- 28. Maximize each customer Business Acumen
- 29. Growth
- 30. What can we do? • Anythingto keep expenses down • Anything to help others see how their daily decisions impact the financials of the company • Anything to bring in more revenue
- 31. Store Revenue Margin SG&A Profit Personal Salary, bonus Car, Gas, Clothes, Lunch Rent, T&E, Services Savings Finance Grid Business Acumen
- 32. Putting it all together Business Acumen Make better decisions
Editor's Notes
- TIME (1 min/1 min) REVIEW Read the slide
- TIME (2 mins / 3 mins) STORY Long ago, in an area known as Mesopotamia, between the Tigris and Euphrates river, there was a city. This was no ordinary city. This city was very wealthy. The Kings who ruled the city for over 13 centuries were not blood thirsty land grabbers though. Their wealth was not built from conquering other lands and stealing gold and jewels. They were industrialists. They were innovators. This city, though wealthy had only two resources. Fertile soil and the waters of the Euphrates river. The city built dams and canals to funnel water to the fertile soil thus turning this desert climate into an agricultural mecca. The city was Babylon. 1984 BC – 539 BC. Now, something besides crops grew out of the rich Babylonian soil. This was the ideas surrounding wealth creation. In fact, the Richest Man in Babylon shared his secrets to wealth and those principles are as true today as they were 2500 years ago. The climate in Babylon is similar to the climate in Yuma Arizona. Hot and dry.
- TIME (1 mins / 4 mins) QUESTIONS What is business acumen? FACILITATOR Definition is on the next slide TARGETED Understanding a business situation and dealing with it appropriately
- TIME (2 mins / 6 mins) REVIEW Read the slide DISCUSS The term "business acumen" can be broken down literally as a composite of its two component words: Business literacy, "the knowledge and understanding of the financial, accounting, marketing and operational functions of an organization. Acumen as "the ability to make good judgments and quick decisions"
- TIME (1 mins / 7 mins) QUESTIONS How does your role specifically contribute to the overall success of the company? How do we make the company more profitable? TARGETED By performing well. (click) By making good decisions. This is what this workshop is about. TRANSITION Let’s consider the view of the board of directors
- TIME (1 mins / 8 mins) QUESTIONS How does the board of directors look at company? TARGETED As a series of numbers on a spreadsheet or P&L. (click) They look at the bottom line. TRANSITION What about a CEO? How do they look at the company?
- TIME (1 mins / 9 mins) DISCUSS The CEO looks at a lot of things. They see people, their talents and challenges. They see assets like buildings, equipment, fixtures. They see expenditures, like cost of goods, utilities, rents, loan payments, payrolls, benefits medical costs. (click) They’re best look at the store as a unit is Talent and the P&L. The profit and loss statement.
- TIME (6 mins / 15 mins) DISCUSS Here a P&L of a store. There is a lot of information in here. Let’s do an activity. ACTIVITY ( Group 2 people)– P&L Handout (3 mins) A P&L includes historical information that can be used to compare time periods. This year last year, etc. To simplify, this handout includes only one column, a snapshot of a current month. (click) Work with your partner and discuss this store’s financials. After activity QUESTIONS What did you notice? Any surprises? What are the store’s biggest expenses? What line item does your current role impact the most? TRANSITION Now that we’ve seen a P&L, let’s break it down into four main ingredients
- TIME (1 mins / 16 mins) DISCUSS These are the four major components of the P&L. These are levers that can be used to increase profitability. ACTIVITY Circle these four components on your P&L (Merchandise Sales, Net, Gross margin (4), SG&A, and EBITDA – GCR) EBITDA - Earnings Before Interest Taxes Depreciate and Amortization) QUESTIONS Is Margin Profit? TARGETED No. (simply) Margin is how much money we make when we sell a piece of gear? Profit is how much money we get to keep after all expenses have been accounted for.
- TIME (1 mins / 17 mins) REVIEW Read slide TARGETED Sales, Co-Op Dollars, income from a TV show perhaps, “Sessions,” Investment income
- TIME (1 mins / 18 mins) QUESTIONS What is margin? How is it calculated? TARGETED Margin is how much money is made when we sell a piece of gear. Most commonly reflected in dollars and as a percentage. (click) Selling price minus purchase price. TRANSITION What effects Margin? Let’s take a look.
- TIME (2 mins / 20 mins) DISCUSS There are lots of items that effect margin. (click) At the store level, discounting gear eats away margin quickly. (click) When technology products become obsolete that can eat a lot of margin. (click) We offer coupons to drive traffic, but they eat away margin. (click) If we’re not doing a good job qualifying customers, we sell them the wrong gear and returns increase. (click) Selling opened or damaged gear eats margin. (click) If our in-stock positon is off and we have to order gear, or ship gear, into the store, that can eat margin. (click) (click) (click) TARGETED Discounting, coupons, repairs, shrink, obsolescence, returns, incorrect stock position, competition.
- TIME (1 mins / 21 mins) QUESTIONS Does anyone know what SG&A stands for? FACILITATOR Let the group answer, mull. Answer on the next slide TRANSITION Let’s se what the definition is.
- TIME (1 mins / 22 mins) DISCUSS There are a lot of expenses which fall into SG&A. If you look at the P&L, you’ll find these are most of the big ones. TRANSITION What is left over after all expenses have been accounted for?
- TIME (1 min / 23 mins) QUESTIONS What is profit? TARGETED What ever is left over after everything is said and done. Revenue minus expenses. TRANSITION Speaking of profit, let’s take a little detour back to Babylon. By a show of hands, who wants to be rich?
- TIME (2 mins / 25 mins) QUESTIONS How much money will it take for you to be rich? QUESTIONS Is being rich the same as being wealthy? What is the difference? DISCUSS According to the richest man in Babylon, wealth is having more passive income than expenses. If you have $1000 of monthly passive income and your monthly expenses are $900, you would be wealthy. TRANSITION Alright, let’s move on.
- TIME (1 mins / 26 mins) DISCUSS The board looks at the company, the CEO looks at the store as units, but let’s see how all this relates to your personal finances. TRANSITION Let’s start at the top of your P&L with revenue
- TIME (1 mins / 27 mins) QUESTIONS What is your personal revenue? TARGETED Salary, Bonus, Passive Income
- TIME (4 min / 31 mins) DISCUSS Relating business acumen to our personal finances is not an exact match. It’s close, but I’ll ask for a little leniency here, ok? Everyone ok with that? OK Remember, Margin is selling price minus the cost of the good. QUESTIONS What is your personal margin? What kinds of cost effect your personal margin? TARGETED All the costs associated with work. Getting to work. Food at work. Clothes and beauty for work. QUESTIONS What kinds of things can you do to increase your personal margin? TARGETED Increase salary. Green commute, eat out less, buy less expensive clothes, etc.
- TIME (2 mins / 33 mins) QUESTIONS What is your personal SG&A? TARGETED Rent, Utilities, Insurance, “Employees” such as gardeners, class instructors, gyms, T&E, Vacations, any non-work related expense. QUESTIONS What can do you to decrease your personal SG&A? TARGETED Eliminate “help,” (Gardeners, Trainers, etc.), not as many vacations, not so many movie channels, limit Starbucks and buy coffee in bulk, etc.
- TIME (2 Mins / 35 mins) QUESTIONS What is your personal profit? TARGETED Savings account, money in your checking account, retirement accounts (401k, IRA), etc. Any money that isn’t needed in the next 60 days. TRANSITION What should we do with our profit?
- TIME (2 mins / 37 mins) QUESTIONS What happens if you spend every dime you make? FACILITATOR Targeted responses on next slide QUESTIONS What happens if you don’t spend any money (besides on essentials)? FACILITATOR Targeted responses on next slide
- TIME (2 mins / 39 mins) DISCUSS It’s about balance. We have to balance our short term needs and wants with long term prospects. Too much now, no long term prospects, too little now, same outcome.
- TIME (1 mins / 40 mins) REVIEW How do we increase revenue? TARGETED More customers and maximizing every customer interaction TRANSITION It’s two fold.
- TIME (1 mins / 41 mins) DISCUSS One way to increase revenue is to get more customers. This is why we spend money on advertising, outreach, content creation, etc. MORE CUSTOMERS TRANSITION How else can we increase revenue?
- TIME (2 mins / 43 mins) DISCUSS Another way to increase revenue is to do a better job with every customer. Maximize every sale. Make sure we are offering all relevant products and services. We increase revenue by adding customers and maximizing the customer we get. QUESTIONS Extra credit here: How do we increase Margin? TARGETED By negotiating better inventory buys, by keeping our inventory secure and in good shape. “Schmegs” sell for less. By making sure we have the right product at the right place at the right time. Shipping eats margin. By being wise in how we negotiate deals. DISCUSS Personally, who are our customers? The only way to increase our personal revenue is to realize that anyone we come in contact with is a customer. Vendors, reps, trainers, associates, peers, competitors, supervisors, other leaders, other retailers, neighbors, social media followers, social groups, etc. TRANSITION So, what is the goal of all of this . . .
- TIME (1 mins / 44 mins) DISCUSS In the end, it’s about growth. TRANSITION Let’s look at three things we can do to participate in growing the company and growing our wealth?
- TIME (1 mins / 45 mins) REVIEW Read the slide TRANSITION Let’s take a last look at our finance grid.
- TIME (1 mins / 46 mins) DISCUSS To connect the store’s financials, the company’s financials, to our own we look at the FOUR main components of the P&L. Review slide
- TIME (2 mins / 48 mins QUESTIONS So, what now? How does business acumen make you more valuable at work? TARGETED (click) I can make more profitable decisions. I can think more strategically by looking at the big picture in the context of organizational success I’m able to see how I fit into the company and how my actions affect the bottom line. TRANSITION Thank you