This document provides an introduction to financial statements and key financial metrics for small business owners. It discusses the importance of setting up systems to gather and analyze financial data on a consistent basis. The three basic financial statements are introduced as the balance sheet, income statement, and cash flow statement. Key metrics for evaluating liquidity and solvency like current ratio, debt-to-equity ratio, and interest coverage ratio are defined. The document concludes with five "proactive accounting commandments" including managing cash flow, understanding gross margins, knowing breakeven points, strategic pricing, and creating a financial plan.

1. Welcome to

2. Know Your Numbers
Matt Deutsch, BT&Co.

3. PAGE HEADING HEREWho Am I?
- With BT&Co. team since
2004
- “Proactive” CPA
- Proud father of 4(!) children

4. PAGE HEADING HEREBaby Britton

5. Beliefs
Questions
Decisions
Activities
DataFinancial Statements
Insight

6. PAGE HEADING HEREThe Business Scoreboard

7. PAGE HEADING HERESystems
• Allow for consistent, reliable and timely
information to be gathered and analyzed
• Set up is critical
• Choose metrics that matter to YOU and your
business most
• Business owners must have a routine for
reviewing and analyzing the numbers of the
business

8. PAGE HEADING HEREBasic Financial Statements
• Balance Sheet
• Income Statement
• Cash Flow Statement

9. PAGE HEADING HEREBasis of Accounting
Accrual Basis (“GAAP”) Cash Basis
• Revenue recognized when
cash is received
• Expenses recognized when
cash is paid
• Revenue recognized when
earned
• Expenses recognized when
incurred
• Allows organizations to
measure financial condition

10. PAGE HEADING HEREBalance Sheet
• What you own (assets) and
what you owe (liabilities)
• Presents the:
• financial condition,
• long-term solvency,
• short-term liquidity of an
organization at a point in
time
Assets –
Liabilities
= Equity

11. PAGE HEADING HERESolvency
Solvency measures a
Company’s ability to meet
long-term obligations.
Sample ratios include:
• Debt to equity
• Debt to assets
• Interest coverage ratio
Debt to equity = Total debt
/ total equity
Debt to assets = Total debt
/ total assets
Interest coverage =
EBITDA / interest expense

12. PAGE HEADING HERELiquidity
Liquidity refers to a Company’s
ability to pay its short-term
obligations
Sample ratios include:
• Current ratio
• Days sales outstanding
• Inventory days
• Accounts payable days
Current ratio = current assets /
current liabilities
Days sales outstanding = accounts
receivable / (annual revenue/365)
Inventory days = Inventory /
(annual COGS/365)
Accounts payable days = accounts
payable / (annual COGS/ 365)

13. PAGE HEADING HEREIncome Statement
Shows the results of your
activities over a period of time
REMEMBER: Net income does
not equal cash flow
Key terms:
- Fixed expenses
- Variable expenses
- Gross Profit and gross
margin
Revenue
– Variable Expenses
= Gross Profit
– Fixed Expenses
= Net Profit

14. PAGE HEADING HEREIncome Statement Ratios
Key ratios:
- Gross profit %
- Fixed cost % of revenue
- Net income % of revenue
- Breakeven sales $ and
amount

15. PAGE HEADING HERECash Flow Statement
An income statement tells us
how much a company expects
to make ; the cash flow
statement tells us the actual
cash inflows and outflows for
the period
Three types of
cash flows:
- Operating
- Financing
- Investing/Capital

16. PAGE HEADING HEREWays to Increase Cash Flow
Ways to Increase Cash Flow
1. Increase prices
2. Increase sales volume
3. Reduce direct costs of providing services
4. Reduce overhead costs
5. Reduce A/R
6. Reduce inventory days
7. Increase A/P days

17. PAGE HEADING HEREMatt’s Top 5 Proactive Accounting
Commandments
Thou shalt:
I. Manage the cash gap
II. Know your gross margins by
product/service AND by
customer type
III. Know your breakeven
numbers ($ and units)
IV. Price strategically
V. Plan for financial success

18. PAGE HEADING HEREI. Manage the cash gap
Take proactive steps to shorten cycle times
within the cash conversion cycle

19. PAGE HEADING HEREII. Margins
Segment information into useful chunks
• By activity, customer type, etc.
Unpack line items to get down to the underlying driver
Example – sales revenue
• (current customers + new customers – lost customers) =
total customers
• Total customers x average $ sale = revenue
Each component has specific strategies to improve that
component
New customers = # of leads x conversion rate

20. PAGE HEADING HEREIII. Breakeven sales dollars
Breakeven Sales $ = Fixed costs / Gross Profit %
BE $ = 966,618 / 30%
BE = 3,222,060
BE + Desired Profit Sales $= (Fixed Costs + Desired
Profit) / Gross Profit %
BE + Profit Sales $ = (966,618 + 250,000) / 30%
BE + Profit Sales $ = 4,055,393

21. PAGE HEADING HEREIII. Breakeven sales units
Breakeven Sales units = Fixed costs / Gross Profit $
BE $ = 966,618 / ($10,000 sale - $7,000 COGS)
BE = 322 units annually (27 per month)
BE units + Desired Profit Sales = (Fixed Costs +
Desired Profit) / Gross Profit $
BE + Profit Sales $ = (966,618 + 250,000) / $3,000
BE units + Profit Sales $ = 406 units (34 per month)

22. PAGE HEADING HEREIV. Price Strategically

23. PAGE HEADING HEREIV. Price Strategically

24. PAGE HEADING HEREV. Have a financial plan for your
business
• Sketch of the future
“The fundamental job of a leader is prediction”
- W. Edwards Deming
• Provides in-depth insight into your business model
• What is and isn’t working
• What are our highest priorities
• Increased confidence in decision-making
• Exploit opportunities, avoid catastrophes
• Provides a goal to shoot for and something against which progress can
be evaluated
• Be brutally honest and truthful
• If you don’t like what the future looks like, you have a chance to
do something about it!
• Don’t wait and hope! Plan your success in advance!

25. PAGE HEADING HEREThank You!
Matt Deutsch
mdeutsch@btandcocpa.com
(785) 234-3427
www.btandcocpa.com