Ownership Thinking For Your Business

The Business Model
for the 21st Century

Presented By:

David Saxe
Next Level Business Planning

Cash Flow
Risk
Owners Revenue Growth

think Market share

about… Competition
Employee Retention
Cost Control

Paycheck
Benefits
Doing my Work
Employees
Security
think Friday
about… Work
Environment
Opportunity

Ownership Thinking:
Moving From Me to Us
Owner Employee
Cash Flow Paycheck
Risk Benefits
Revenue Growth Doing my Work
Market share Security
Competition Friday
Employee Retention Work Environment
Cost Control Opportunity
Copyright Ownership ThinkingTM 2012. 303-984-1434, www.ownershipthinking.com

Creating an Organization of Winners
ENTITLEMENT EARNING FEAR
High

LET’S GO FOR
EXCELLENCE!

HAVE YOU SHOOT
THOUGHT IT FOR THE
THROUGH? BIG ONE!
I LIKE
THINGS
YOU CAN
JUST THE
NEVER
WAY THEY
LET UP
ARE

I DID THE
BEST I
COULD WATCH
OUT!
I HAVE IT
COMING MAKE
ME SAFE

Low High

The
Ownership Thinking Process

The Right
Incentives

The Right
Measures

The Right The Right
Education People

VALUES The Right People
PUPPIES STARS

DOGS TERRORISTS

PERFORMANCE

How to Effectively Teach
Finance to Employees
Paycheck Bills Savings

John Employee 2,083.00
Two Thousand Eighty Three & .00

Revenue Expenses Profit/Loss


The Three
Financial Statements

Income Statement Cash Flow Statement
Sales Cash In
- Expenses - Cash Out
Profit Before Tax = Change in Cash
Balance Sheet
Own = Owe + Really Own
INVENTORY
DEBT
EQUIPMENT
RECEIVABLES


What your employees
don’t know
can hurt you

The Income
Statement

DESCRIPTION $ (000s) HOW DO I CALCULATE IT?
1 Sales $14,000
2 Direct Expenses Direct Expenses
3 Gross Profit $14,000 Subtract Direct Expenses (2) from Sales (1)
4 Overhead Expenses
Subtract Total Overhead Expenses (4) from
5 Profit Before Taxes (PBT) $14,000 Gross Profit (3)

The Income
Statement

DESCRIPTION $(000s) HOW DO I CALCULATE IT?
1 Sales $14,000
2 Direct Expenses $6,830 Direct Expenses
3 Gross Profit $7,170 Subtract Direct Expenses (2) from Sales (1)
4 Overhead Expenses $6,430
Subtract Total Overhead Expenses (4) from
5 Profit Before Taxes (PBT) $740 Gross Profit (3)


Grow Sales or Reduce
Expenses
SALES

- EXPENSES

= PROFIT

Finding the Money
“Cracks in the Table”
INEFFICIENCIES


Case Study:
Opportunities
LIST THE GREATEST OPPORTUNITIES FOR IMPROVEMENT OR INNOVATION”


Case Study:
Collection Days
Average collection days at the Company are running around 65 (meaning
customers pay after an average of 65 days after invoicing).
Questions for Consideration:
How do average collection days impact our Income Statement?

How do they impact our Cash Flow?

What departments have an impact on average collection days?
1. 2. 3. 4.
If average collection days could be reduced from 65 to 45, approximately
how much cash would this bring into the business?
Monthly Sales $ 1,167,000
Divided by Days in Month 30 Days
Equals Daily Potential Collections $ 38,900
X20 (65-45) $ 778,000

What could this cash be used for? Could this impact the Income
Statement?
What actions can be taken to improve this situation?
© Ownership Thinking™ 2012

Key Performance Indicators (KPI’s)

• Operational (leading) measures
• Financial (lagging) measures

• Factors which will have the greatest impact on the
success or failure of your organization


Identifying Your Key
Indicators

FINANCIAL DATA
INTELLECTUAL DATA


ForecastingForecasting:
Scoreboards & with
Scoreboards:
Exercise
ProTech Inc. Scoreboard
Exercise Forecast Actual
Plan
Susan Existing Client Sales $ 700,000
Calculation Existing % 93.33% #DIV/0! #DIV/0!
Tom New Client Sales $ 50,000
Calculation New % 6.67% #DIV/0! #DIV/0!
Calculation Total Sales $ 750,000 $ - $ -
Alex Direct Labor $ 400,000
Calculation Gross Margin $ 350,000 $ - $ -
Maury Overhead $ 250,000
Calculation Profit Before Tax $ 100,000 $ - $ -

Maureen % Non-Owner Sales 80%
Linda # of Qualified Leads 60
Cydny Close Rate 35%
Frank # of Active Clients 16
Felix Billable Hour % 80%
Tony Average Markup 57%
Greg Average Collection Days 40
Tonya Number of Open Positions 2
Chad Customer Service Score303-984-1434,
Copyright Ownership Thinking 2012.
TM 95%
www.ownershipthinking.com

Cascading

Mission
Vision Plan Forecast Actual
Bob Sales $ 1,650,000 $ 1,720,000 $ 1,728,000
Bill Direct Labor $ 650,000 $ 670,000 $ 668,000

Strategies Ann
Calc.
Todd
Materials
Gross Margin
Overhead
$
$
$
450,000
550,000
400,000
$
$
$
445,000
605,000
400,000
$
$
$
440,000
620,000
396,000
Calc. Profit Before Tax $ 150,000 $ 205,000 $ 224,000

Strategy Bill
Doug
Average Cost/Package
Discounts/Returns $
$1.50
1,500 $
$1.58
2,200 $
$1.54
2,260
Sally
Adam
On-Time Delivery %
Sales Per Staff Hour $
95%
10,500 $
96%
9,550 $
97%
9,362
NAME KPI BUDGET FORECAST ACTUAL
Todd Average Collection Days 40 38 37
Ann Inventory Turns 7 7 6 Tom Overtime $600 $450 $438 Rapid
Leadership Allan Packaging Waste 250 lbs 290 lbs 310 lbs Improvement
Phyllis Product Waste 500 lbs 820 lbs 730 lbs
Scoreboard Plans
Tom Avg. Set Up Time 50 mins. 40 mins. 40 mins. NO MORE TEARS
Allan Packages/Hour 1700 1550 1620 Objectives
Actions &
People
Financial
Benefits Prize
xxxxxxxxx xxxxxxxxx

Department / BU xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx

Scoreboard xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxxxxxxx
xxxx
xxxxxxxxx xxxxxxxxx xxxxxxxxx
xxxxxxxxx xxxxxxxxx xxxxxxxx


RIP Example: Reducing
Average Collection Days
Big Green Cash Cow
Objective Actions/People Benefits Celebration
Clear, accurate, Increase
Reduce Average and timely invoices available cash by Bar BQ with
Collection Days by Ask for progress $778,000 Band
20 (from 65 to 45) payments Increase GM
7-day “customer (annually) by
service” call $20,000 due to
taking discounts
Credit approvals from suppliers
Time Frame Monthly
Reduce interest
Cost
statements and call
lists expense by
$24,000 $1,500
90 Days
Beginning April 1st Sales team
report on aging
Improve quality
and fill rate

Medical Supply Distributor
Impact of RIPs
QTR Name Objective Savings
Q1 The Vendor Love Boat Reduce junk fees, take all discounts, $ 30,000.00
Q1 Sizzlin Samples Reduce Samples expense and Sample Freight $ 12,000.00
Q1 Mercedes Drives 100 Add 100 new accounts per month $ 11,954.00
Q1 Returns of the Jedi Reducing customer returns $ 15,000.00
Q1 It Aint Easy Being Green Reducing carbon footprint $ 5,000.00
Q2 CPR Flatliners Reduce customer attrition $ 15,325.00
Q2 The Terminator Paperless Picking and Packing in warehouse $ 5,400.00
Q2 Deal or No Deal Reduce Variouse Operating Expense $ 17,500.00
Q2 UP (a catalog adventure) Obtain vendor sponsorships for ads in catalog $ 41,000.00
Q2 Credit Casino Royale Reduce Customer Credits due to order error $ 12,500.00
Q3 The Matrix Increase Web Sales $ 54,000.00
Q3 No Going Postal Invoices via Fax or Email - Reduce Postage $ 441.76
Q3 The Three Amigas Upselling customers during order taking $ 3,583.00
$ 223,703.76

A Well Designed
Incentive Plan should…
• Be Self Funding
• Be perceived as Valuable
• Have Shared Targets
• Be Understandable
• Include a Stretch Goal
• Clearly Align Employees’ Behavior to Business
Objectives


Broad Based Incentive
Design: Example
PBT After Incentive 30% of incremental PBT dollars after
threshold of $900,000 go to incentive
Payout PBT Pool
$900,000 $900,000 $0
0 plan
All employees eligible 90 days after
hire date
$970,000 $1,000,000 $30,000 Quarterly payout. 50% of incentive
$1,040,000 $1,100,000 $60,000 for quarters 1-3 will be banked, and an
adjustment will be made at year end
$1,110,000 $1,200,000 $90,000 Incentive will be prorated if an
$1,180,000 $1,300,000 $120,000 employee has been eligible less than a
full quarter
$1,250,000 $1,400,000 $150,000 30% Prorated for part time employees
Distribution method TBD
$1,320,000 $1,500,000 $180,000
Incentive payouts are taxable wages
$1,390,000 $1,600,000 $210,000 Must be employed on last date of
$1,460,000 $1,700,000 $240,000 incentive period, or no longer eligible
No cap on plan
$1,530,000 $1,800,000 $270,000 At stretch goal PBT of $1,500,000
$1,600,000 $1,900,000 $300,000 payout is 6% of total wages.

1st Year Results:
Office Furniture Distributor
Year Prior to Ownership 1st Year Results
Ownership Thinking Thinking FOCUS with OT
Sales: $8.5 Million Gross Margin Sales: $12 Million
Gross Profit: 24.1% Profit Before Tax Gross Profit: 26%
Sales Expense Profit/Loss: $650k
Profit/Loss: ($395k)
Install Expense Profit/Loss %: 6%
Profit/Loss %: (4.6%) Debt Reduction Ind. Standard: 3.5%
Cash Flow: ($514k) Error Reduction Cash Flow: $359k
Estimating Accuracy LT Debt: $216k
LT Debt: $587k
Collections DSO: 29 days
DSO: 50 days Labor Efficiency
Inventory Turns: 65
Inventory Turns: 15 Inventory Control
Bonus Payout:
Profitable Revenue $3,300 per Employee
Bonus Payout: None

Sample Agenda
Day One
8:00am to 8:15am Introductions (leadership team and up to 30 employees
through 12:00pm)
8:15am to 9:15am Ownership Thinking Overview
- SI Video
- Assessment Review
9:15am to 12:00pm Ownership Thinking ™ & Money Matters ™ Training
- Break at 10:45am
12:00pm to 12:30pm Break, Lunch (leadership team only remainder of day)
12:30pm to 1:30pm Key Issue Discussion
1:30pm to 1:45pm Break
1:45pm to 3:15pm Identify Key Indicators and Build Scoreboard
- Individual and/or departmental dashboards
3:15pm to 3:30pm Rapid Improvement Plan Identification (for following day)
3:30pm to 4:00pm Incentive Plan Discussion and Metric Identification

Sample Agenda
Day Two
8:00am to 9:30am Scoreboard Review and Huddle Training (leadership team
only through 12:00pm)
- Forecasting / Huddle Video
9:30am to 10:15am Incentive Plan Review and Discussion
10:15am to 10:30am Break
10:30am to 11:00am Action Items and Timetables
11:00am to 12:00pm Rapid Improvement Plan Exercise

12:00pm to 12:30pm Lunch for all employees – (review results of leadership team
work)

(If >30 employees, Money MattersTM training for remaining employees in additional half-day
sessions of 30-40 employees per session)

Information
As a participant in one of our talks, you are eligible for a
FREE 60-DAY MEMBERSHIP TO THE OT CLUB
Access to Dialogue Page
Bi-Monthly, Free Webinars and Tips Messages
Additional Discounts on Conferences and OT Products
Give us your card or email us to get your free membership link

Don’t miss our 6th Annual Conference:
“Creating Cultures of Accountability and Purpose”
Inverness Hotel and Conference Center, Denver, CO
October 11th – 12th, 2012 – See our website for details

NEW FOR 2012
Regional Ownership Thinking Getting Started Workshops (1 Day)
Visit www.ownershipthinking.com for more information
David Saxe – Next Level Business Planning
Phone: 613-563-1085 Fax: 613-231-2914
Email: david@nextlevelbusinessplanning.com
Website: www.nextlevelbusinessplanning.com

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