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 You Want 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 time putting 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 You Want 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
 Dust off 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
 Look for 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 State of 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
 Six Sigma 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 on Paper

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