Understanding Financial Information

Need not be Scared

• We all should have a foundation in understanding finances

• Allows you to be proactive rather than reactive

• Relevant for almost everyone:

– Business Owners

– Project Managers

– Professionals (Attorneys, Accountants, Consultants, etc.)

– Running a Political Campaign

Understanding Financial Information

• Terminology

• Filling up your toolbox

• Planning Tools

• Reporting Tools

• Analyzing Tools

• Implementation Tools

Terminology

• Balance Sheet

• Income Statement

• Cash Flow

• Liquidity

• Margin

• ROI (Return on Investment)

Balance SheetSection-1: Assets

What do you possess of value (cash, receivables, fixed assets, etc.)

Section-2: Liabilities

What do you owe (payables, loans, etc.)

Section-3: Equity

Owner’s activities

Historic performance

Assets = Liabilities + Equity

Balance Sheetas of Dec. 31, 2009

ASSETSCurrent Assets

Operating Cash 14,900 14,900

Other Current AssetsAccounts Receivable 94,000

94,000 Fixed Assets

Furniture & Fixtures 5,000

Computer Equipment & Software 10,000 Accumulated Depreciation (2,333)

12,667

TOTAL ASSETS 126,567

LIABILITIESCurrent Liabilities

Accounts Payable 25,851 25,851

Long-Term LiabilitiesNotes Payable 75,000

75,000 TOTAL LIABILITIES 100,851

EQUITYCapital Investments 10,000 Retained Earnings 7,716 Current Net Income 8,000

25,716

TOTAL LIABILITIES & EQUITY 126,567

Income StatementSection-1: Revenues

Tracking monies flowing in

Section-2: Expenses

Tracking monies flowing out

Section-3: Net Income

Revenues less Expenses

Positive is GOOD

Negative is not so good

Income Statementas of Dec.31, 2009

INCOMESales 750,000 Interest Income 3,248

TOTAL INCOME 753,248

EXPENSESSalaries & Wages 380,000 Payroll Taxes + Fringe 56,000 Outside Professional Fees 48,000 Rent 80,000 Supplies 12,000 Postage & Delivery 5,000 Printing 20,000 Marketing & Advertising 81,000 Meals & Entertainment 12,000 Insurance 15,000 Licenses and Fees 3,000 Interest Expense 7,000

TOTAL EXPENSES 719,000

NET INCOME 34,248

Cash FlowSection-1: Inflows

Understanding expected cash coming in

Section-2: Outflows

Understanding expected cash going out

Section-3: Net Cash

Inflows less Outflows

Positive is GOOD

Negative is not so good

      Last Week Current Week Out 1 Week Out 2 Weeks Out 3 Weeks

             

Beginning Cash Balance: $ 25,390.90 $ 30,035.49 $ 32,085.19 $ 34,585.19 $ 42,185.19

               

Inflows          

           

Deposits >>>>>>>>>>>>> $ 15,772.95 $ 6,854.82 $ 20,000.00 $ 15,000.00 $ 15,000.00

           

XFR's In >>>>>>>>>>>>> - $ - - - $ -

           

    Totals $ 15,772.95 $ 6,854.82 $ 20,000.00 $ 15,000.00 $ 15,000.00

               

Outflows          

           

Payroll >>>>>>>>>>>>> $ 7,419.08 $ 2,349.12 $ 7,500.00 $ 2,400.00 $ 7,500.00

           

Payables >>>>>>>>>>>>> $ 3,709.28 $ 2,456.00 $ 10,000.00 $ 5,000.00 $ 10,000.00

           

Adjustment >>>>>>>>>>>>>     $ - $ - $ -

           

    Totals $ 11,128.36 $ 4,805.12 $ 17,500.00 $ 7,400.00 $ 17,500.00

               

Ending Cash Balance: $ 30,035.49 $ 32,085.19 $ 34,585.19 $ 42,185.19 $ 39,685.19

Liquidity

• How much cash do you have?

• What can be converted to cash quickly?

• How many days of cash on hand do you have (if no revenues are coming in, how long can you operate for)?

Margin

• Measuring Profitability.

• If you have a billing rate of $200 per hour, you are not keeping $200 per hour in your pocket.

• If you are selling a product for $50, you have inventory costs, shipping costs, etc.

ROI

• Return on Investment

• Always know what every dollar spent is worth to your bottom line

• Be able to answer questions such as:– What did spending $10k in advertising do to my

revenues?– What did adding a sales person do to my revenues?– What was the bottom line effect on spending $50k on

automation?– How did spending $25k in PR increase my visibility?

Running a Successful Business

• Retail, Law Firms, Consulting, Political Campaigns – They are all businesses

• 4 Simple Steps:– PLAN– REPORT– ANALYZE– IMPLEMENT

Planning

• Before a single dollar is spent on an idea, develop a business plan and strategic plan. Focus your thoughts and validate your vision.

• Planning includes budgeting and cash forecasting.

Reporting

• Produce financial statements on business activities– Balance Sheet– Income Statement– Statement of Cash Flows

• Produce relevant reports on your business:– Page views and sales conversion rates for internet

businesses– Velocity reports for inventory based businesses– Billable hour details for professional services

Analyzing

• What are your reports telling you?

• What are your margins?

• Assess ROI for monies spent.

Implementing

• What needs to change based on your analysis?

• Always be proactive, but react to what your reports are telling you.

Understanding Financial Information

Q&A