UNDERSTANDING YOUR BUSINESS

PAINTING A PICTURE OF YOUR BUSINESS WITH THE NUMBERS

HOW SHOULD WE USE THE

FINANCIAL RESULTS?

• You put a lot of effort into generating the financial results on a monthly basis.

• Accounting is not an art, but understanding what the numbers tell us is an art.

• The numbers paint a picture of what’s working and what needs attention if you look in the right places.

LET’S LOOK AT SOME EXAMPLES

• The numbers can take the emotions out of a business decision.

• Trends can show how the business is succeeding or deteriorating.

• Details in the financial results can show investors the value of your business.

that are used to measure productivity and operating results

EMOTIONS CAN LEAD US DOWN THE

WRONG PATH

• A plastics manufacturing company had a line of products that was unique to their shoe manufacturing customers.

• One of the principals in the business spent a lot of money and energy setting up the manufacturing process.

• This line of business was losing money.

LET’S LOOK AT THE NUMBERS

• The variable cost of the product was $.10/LB more that the selling price.

• Only direct costs (material, labor & freight) were included in variable costs.

• Competitive pressure would not allow for a price increase.

• After several months of discussions, the owners were convinced to shut down the product line.

CONCLUSION

• Emotions can prevent a business from making good decisions.

• You need to pay attention to the numbers!!!

FINANCIAL TRENDS CAN SHOW WHERE

PROBLEMS ARE HIDING

• Small box clothing retailer had a successful business selling college logo products in college towns.

• Low retail prices resulted in good growth in same store sales.

• The company expanded into large box retail locations with initial success due to low price points.

• Same store sales declined after second year of operations due to market saturation.

LOOKING AT THE TREND COULD HAVE

SAVED THE BUSINESS

• Rapid opening of new stores masked the down trend in same store sales at existing stores.

• Inventory growth was outpacing the growth in store openings.

• The company raised millions in venture funding based on the growth of new store openings.

• The venture fund didn’t look at the same store sales growth and inventory growth.

• 90 days after raising the venture funds, the company went bankrupt.

CONCLUSION

• If you don’t look at the important numbers and trends in the business, you will not see what’s coming.

SUCCESSFUL BUSINESS LOOK SUCCESSFUL

IN THE DETAILS

• An apparel manufacturer was showing annual operating profits for the last 5 years and growing the top line.

• The company has a broad customer base and had recently won a major contract with a very significant customer.

• Margins at the SKU level were generally over 30% which was slightly above industry trends.

• There was only one small business segment that had excess inventory based on the sales in that market.

THE TRUTH IS FOUND IN THE DETAILS

• The owners had an opportunity to sell the business.

• The buyers looked long and hard at the individual components of the business and the trends over the last few years.

• With the exception of one small line of business, the details showed good margins and good growth.

• The sale was completed and the company was successfully integrated into the new owners business.

CONCLUSION

• Knowing the key numbers that drive the results for your business will tell you and others what’s working and where the challenges are lurking.

PAINTING A PICTURE OF YOUR BUSINESS

WITH THE NUMBERS

• Do you know what the most important numbers are for your business?

• What products and customers contribute the largest percentage to your bottom line?

• What products and customers are you losing money on and why?

• Are the assets on your balance sheet masking the real financial results?

• How often are you asking these questions and demanding the answers?

CONCLUSION

• Knowing the key numbers that drive the results for your business will tell you and others what’s working and where the challenges are lurking.

ABOUT THE PRESENTER

• Mr. Ingalls is an independent financial consultant working with businesses to focus the management team on the bottom line and develop a financial profile for the business.

• Contact InformationStephen Ingalls CPA516-383-8481stephen_ingalls@yahoo.com