First BAP teleconference

1. Finance for
Small Business Ownership And Success —
An Adventure In Transformation
© 2009 Wright Business Institute, Inc. 1 1
© Wright Business Institute, Inc.

2. What’s In It For Me?
ore certainty
reater accuracy, analysis, and direction
reater understanding of how your business works, what
works, and what does not
mproved planning
mproved problem solving
© 2009 Wright Business Institute, Inc. 2
ess confusion

3. The Six Small Business Errors in Finance
hinking all money you pay yourself is profit
© 2009 Wright Business Institute, Inc. 3

4. The Six Small Business Errors in Finance
hinking all money you pay yourself is profit
ot keeping good numbers
© 2009 Wright Business Institute, Inc. 4

5. The Six Small Business Errors in Finance
hinking all money you pay yourself is profit
ot keeping good numbers
ot paying yourself for key roles
© 2009 Wright Business Institute, Inc. 5

6. The Six Small Business Errors in Finance
hinking all money you pay yourself is profit
ot keeping good numbers
ot paying yourself for key roles
ot trusting your numbers
© 2009 Wright Business Institute, Inc. 6

7. The Six Small Business Errors in Finance
hinking all money you pay yourself is profit
ot keeping good numbers
ot paying yourself for key roles
ot trusting your numbers
hinking accountants know business (they know
© 2009 Wright Business Institute, Inc. 7
accounting)

8. The Six Small Business Errors in Finance
hinking all money you pay yourself is profit
ot keeping good numbers
ot paying yourself for key roles
ot trusting your numbers
hinking accountants know business (they know
© 2009 Wright Business Institute, Inc. 8
accounting)

9. Your Two Scorecards – Balance Sheet and P&L Statement
► Balance Sheet—Lets you know your overall financial
position in terms of assets and liabilities
► Profit and Loss Statement (P&L)—Lets you know
the score of any given unit of time from daily to
monthly, quarterly, and annually. The P&L gives you a
dynamic picture of what and how you are doing.
► Today we will focus on the P&L.
© 2009 Wright Business Institute, Inc. 9

10. Learning to “Read” Your P&L
earning to read your P&L requires
nderstanding the basics of the P&L
eading the percentages within the P&L
eviewing comparisons of the P&L against last year,
budget, or other variables
© 2009 Wright Business Institute, Inc. 10
nderstanding key ratios and success factors

11. The Profit and Loss Statement (P&L)
► Revenue– Money in
© 2009 Wright Business Institute, Inc. 11

12. The Profit and Loss Statement (P&L)
► Revenue– Money in
► Direct or Variable Costs—Money out
© 2009 Wright Business Institute, Inc. 12

13. The Profit and Loss Statement (P&L)
► Revenue– Money in
► Direct or Variable Costs—Money out
► Gross Profit
© 2009 Wright Business Institute, Inc. 13

14. The Profit and Loss Statement (P&L)
► Revenue– Money in
► Direct or Variable Costs—Money out
► Gross Profit
► Fixed (Overhead) Costs
© 2009 Wright Business Institute, Inc. 14

15. The Profit and Loss Statement (P&L)
► Revenue– Money in
► Direct or Variable Costs—Money out
► Gross Profit
► Fixed (Overhead) Costs
► Net (Profit)
© 2009 Wright Business Institute, Inc. 15

16. A Small Business P&L
Acme Company
Profit & Loss Statement
For Month Ended December 31, 2008
Revenue (Sales) 46,895
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses 21,011
Net Profit 5,019
© 2009 Wright Business Institute, Inc. 16

17. Revenue & Cost of Sales/Delivery Categories
Acme Company Revenue (Sales)
Profit & Loss Statement Consulting 20,451
For Month Ended December 31, 2008
Products 26,444
Revenue (Sales) 46,895 Open Category
Total Revenue (Sales) 46,895
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses 21,011 Cost of Sales & Delivery
Sales Commissions 4,298
Net Profit 5,019
Delivery Costs 16,567
Open Category
Total Cost of Sales & Delivery 20,865
© 2009 Wright Business Institute, Inc. 17

18. Fixed Expense Categories
Acme Company Fixed Expenses
Profit & Loss Statement Payroll 5,104
For Month Ended December 31, 2008
Outside services 6,532
Revenue (Sales) 46,895 Rent 4,875
Supplies 1,155
Cost of Sales & Delivery 20,865
Taxes (real estate, etc.) 1,000
Gross Profit 26,030 Utilities 842
Advertising 288
Fixed Expenses 21,011
Telephone 389
Net Profit 5,019 Car, delivery and travel 387
Accounting and legal 189
Insurance 250
Interest
Depreciation
Open Category
Total Expenses 21,011
© 2009 Wright Business Institute, Inc. 18

19. Percentage
e
nu
n tal
ve
tal f
Re o f T o
c 8
To % ue o
De ec 0
Re
ls
Ac tu08
tua l
a
ve
D
%
Ac
Revenue (Sales)
Consulting 20,451 44%
Products 26,444 56%
Open Category
Total Revenue (Sales) 46,895 100%
Change figures Cost of Sales & Delivery
Sales Commissions 4,298 9%
Delivery Costs 16,567 35%
Open Category
Total Cost of Sales & Delivery 20,865 40%
Gross Profit 26,030 56%
Fixed Expenses
Payroll 5,104 11%
Outside services 6,532 14%
Rent 4,875 10%
Supplies 1,155 2%
Taxes (real estate, etc.) 1,000 2%
Utilities 842 1.8%
© 2009 Wright Business Institute, Inc. 19

20. Actuals to Budget
ce
an
ls
Ac 08
et
Bu 08
tua
ari
dg
c
c
De
$v
De
%
Revenue (Sales)
Consulting 20,451 25,000 (4,549) -18%
Products 26,444 25,000 1,444 6%
Open Category
Total Revenue (Sales) 46,895 50,000 (3,105) -6%
Cost of Sales & Delivery
Sales Commissions 4,298 5,000 702 14%
Delivery Costs 16,567 15,000 (1,567) -10%
Open Category
Total Cost of Sales & Delivery 20,865 20,000 (865) -4%
Gross Profit 26,030 30,000 (3,970) -13%
Fixed Expenses
Payroll 5,104 5,000 (104) -2%
Outside services 6,532 5,000 (1,532) -31%
Rent 4,875 5,000 125 3%
Supplies 1,155 1,500 345 23%
Taxes (real estate, etc.) 1,000 1,000 0 0%
Utilities 842 700 (142) -20%
Advertising 288 500 212 42%
© 2009 Wright Business Institute, Inc. 20

21. Comparison to Previous Year
ce
an
ls
ls
Ac 08
Ac 07
tua
tua
ari
c
c
De
De
$v
%
Revenue (Sales)
Consulting 20,451 23,677 (3,226) -14%
Products 26,444 25,678 766 3%
Open Category
Total Revenue (Sales) 46,895 49,355 (2,460) -5%
Cost of Sales & Delivery
Sales Commissions 4,298 4,067 (231) -6%
Delivery Costs 16,567 17,888 1,321 7%
Open Category
Total Cost of Sales & Delivery 20,865 21,955 1,090 5%
Gross Profit 26,030 27,400 (1,370) -5%
Fixed Expenses
Payroll 5,104 4,864 (240) -5%
Outside services 6,532 7,335 803 11%
Rent 4,875 4,875 0 0%
Supplies 1,155 1,289 134 10%
Taxes (real estate, etc.) 1,000 900 (100) -11%
Utilities 842 902 60 7%
Advertising 288 401 113 28%
© 2009 Wright Business Institute, Inc. 21

22. Paying Yourself
Your Sales
Commission
Acme Company
Profit & Loss Statement Cost of Sales & Delivery
For Month Ended December 31, 2008 Sales Commissions 4,298
Delivery Costs 16,567
Revenue (Sales) 46,895
Open Category
Total Cost of Sales & Delivery 20,865
Cost of Sales & Delivery 20,865
Gross Profit 26,030
Fixed Expenses
Fixed Expenses 21,011
Payroll 5,104
Net Profit 5,019 Outside services 6,532
Rent 4,875
Supplies 1,155
Taxes (real estate, etc.) 1,000
Utilities 842
© 2009 Wright Business Institute, Inc. 22

23. Paying Yourself
Your Sales
Commission
Acme Company
Profit & Loss Statement Cost of Sales & Delivery
For Month Ended December 31, 2008 Sales Commissions 4,298
Delivery Costs 16,567
Revenue (Sales) 46,895
Open Category
Total Cost of Sales & Delivery 20,865
Cost of Sales & Delivery 20,865
Your Pay for
Gross Profit 26,030 Delivery
Fixed Expenses
Fixed Expenses 21,011
Payroll 5,104
Net Profit 5,019 Outside services 6,532
Rent 4,875
Supplies 1,155
Taxes (real estate, etc.) 1,000
Utilities 842
© 2009 Wright Business Institute, Inc. 23

24. Paying Yourself
Your Sales
Commission
Acme Company
Profit & Loss Statement Cost of Sales & Delivery
For Month Ended December 31, 2008 Sales Commissions 4,298
Delivery Costs 16,567
Revenue (Sales) 46,895
Open Category
Total Cost of Sales & Delivery 20,865
Cost of Sales & Delivery 20,865
Your Pay for
Gross Profit 26,030 Delivery
Fixed Expenses
Fixed Expenses 21,011
Payroll 5,104
Net Profit 5,019 Outside services 6,532
Rent 4,875
Supplies 1,155
Taxes (real estate, etc.) 1,000
Utilities Your 842
Administrative
Salary
© 2009 Wright Business Institute, Inc. 24

25. Paying Yourself
Your Sales
Commission
Acme Company
Profit & Loss Statement Cost of Sales & Delivery
For Month Ended December 31, 2008 Sales Commissions 4,298
Delivery Costs 16,567
Revenue (Sales) 46,895
Open Category
Total Cost of Sales & Delivery 20,865
Cost of Sales & Delivery 20,865
Your Pay for
Gross Profit 26,030 Delivery
Fixed Expenses
Fixed Expenses 21,011
Payroll 5,104
Net Profit 5,019 Outside services 6,532
Rent 4,875
Supplies 1,155
Taxes (real estate, etc.) 1,000
Your Profit Utilities Your 842
Administrative
Salary
© 2009 Wright Business Institute, Inc. 25

26. The Three Musts in Constructing Your General Ledger
. Record your sales and pay yourself a commission as a
salesperson.
© 2009 Wright Business Institute, Inc. 26

27. The Three Musts in Constructing Your General Ledger
. Record your sales and pay yourself a commission as a
salesperson.
. Record your personal delivery hours and wages and
pay yourself as you would any delivery person.
© 2009 Wright Business Institute, Inc. 27

28. The Three Musts in Constructing Your General Ledger
ecord your sales and pay yourself a commission as a
salesperson.
ecord your personal delivery hours and wages and pay
yourself as you would any delivery person.
ay yourself as an administrator.
© 2009 Wright Business Institute, Inc. 28

29. The Three Musts in Constructing Your General Ledger
ecord your sales and pay yourself a commission as a
salesperson.
ecord your personal delivery hours and wages and pay
yourself as you would any delivery person.
ay yourself as an administrator.
dentify profit and loss—even if you choose not to pay
yourself all you “earned.”
© 2009 Wright Business Institute, Inc. 29

30. The Three Musts in Constructing Your General Ledger
ecord your sales and pay yourself a commission as a
salesperson.
ecord your personal delivery hours and wages and pay
yourself as you would any delivery person.
ay yourself as an administrator.
dentify profit and loss—even if you choose not to pay
yourself all you “earned.”
istinguish profit from salary. © 2009 Wright Business Institute, Inc. 30

31. Reading Your Profit and Loss Statement
hat is the first thing you look at and why?
© 2009 Wright Business Institute, Inc. 31

32. Reading Your Profit and Loss Statement
hat is the first thing you look at and why?
hat is the second thing you look at and why?
© 2009 Wright Business Institute, Inc. 32

33. Reading Your Profit and Loss Statement
hat is the first thing you look at and why?
hat is the second thing you look at and why?
hat are the three most important lines on your P&L?
© 2009 Wright Business Institute, Inc. 33

34. Reading Your Profit and Loss Statement
hat is the first thing you look at and why?
hat is the second thing you look at and why?
hat are the three most important lines on your P&L?
ow do you use your P&L to analyze apparent successes
and problems?
© 2009 Wright Business Institute, Inc. 34

35. Reading Your Profit and Loss Statement
hat is the first thing you look at and why?
hat is the second thing you look at and why?
hat are the three most important lines on your P&L?
ow do you use your P&L to analyze apparent successes
and problems?
ow do you use your P&L to plan?
© 2009 Wright Business Institute, Inc. 35

36. Reading Your Profit and Loss Statement
hat is the first thing you look at and why?
hat is the second thing you look at and why?
hat are the three most important lines on your P&L?
ow do you use your P&L to analyze apparent successes
and problems?
ow do you use your P&L to plan?
© 2009 Wright Business Institute, Inc. 36
hat is the most important line in your P&L to drive your

37. The Map – Overview and Review
Level 1 Initiating
Level 2 Establishing
Level 3 Emerging
Level 4 Differentiating
Level 5 Generating
Level 6 Self-Developing
© 2009 Wright Business Institute, Inc. 37

38. Initiating – Financial Overview
Level 1 Initiating • No P&L
• Don’t know how to use it
• Think money you get is profit
Level 2 Establishing
• Irregular pay--generally just write
checks as needed
Level 3 Emerging
• You are the bookkeeper.
• Financing with
Level 4 Differentiating • SBA loan
• Savings
Level 5 Generating • Credit card
• Family loans
Level 6 Self-Developing • Family investments
© 2009 Wright Business Institute, Inc. 38

39. Establishing – Financial Overview
Level 1 Initiating • May have P&L
• Still don’t know how to use your P&L
• Still don’t trust numbers
Level 2 Establishing
• Just learning to read P&L
• Use P&L a little
Level 3 Emerging
• Still think money you pay yourself is
profit
Level 4 Differentiating • Cash flow is beginning to be a
challenge.
Level 5 Generating • Either you are the bookkeeper or you
have a part time one
Level 6 Self-Developing • Financing with savings and credit cards
• You need to guarantee loans, if any,
personally.
© 2009 Wright Business Institute, Inc. 39

40. Emerging – Financial Overview
Level 1 Initiating • P&L and basic finance in place
• Learning to read and use P&L
• Cash flow is a challenge for many,
Level 2 Establishing
especially service businesses.
• Banks will now pay attention to you.
Level 3 Emerging
• You are on a first name basis with your
banker.
Level 4 Differentiating • Using line of credit to finance.
• You are moving toward a full time
Level 5 Generating bookkeeper.
• You still need to guarantee loans
Level 6 Self-Developing personally.
© 2009 Wright Business Institute, Inc. 40

41. Differentiating – Financial Overview
Level 1 Initiating • Your bookkeeping is useful in analyzing
your business.
• If you haven’t begun budgeting yet, you
Level 2 Establishing
find the need to project and allocate
because you have too many variables
Level 3 Emerging
going to just deal with things as needed.
• You are now more attractive to all kinds
Level 4 Differentiating of investors.
• You are developing your financial
Level 5 Generating systems for scalability
• You likely have a full time bookkeeper.
Level 6 Self-Developing • You probably still guarantee loans
personally.
© 2009 Wright Business Institute, Inc. 41

42. Generating – Financial Overview
Level 1 Initiating This
• You have an accounting staff.
Level 2 Establishing • You may finance major moves rather
than using your own capital.
Level 3 Emerging
• You no longer need to guarantee loans
yourself.
• Your compensation systems are
Level 4 Differentiating
beginning to be very focused.
• You may be considering going public, if
Level 5 Generating you are not committed to staying
private.
Level 6 Self-Developing
© 2009 Wright Business Institute, Inc. 42

43. Generating – Financial Overview
Level 1 Initiating This
Level 2 Establishing
Level 3 Emerging
Level 4 Differentiating
• You use the full range of financing.
• You have systems of accountability that
Level 5 Generating support the company mission
• Your systems of reward maximize
Level 6 Self- performance
Developing
• You consider going public (IPO).
© 2009 Wright Business Institute, Inc. 43

44. Small Business Financing
icroloans
BA loans
ranchise financing
evelopmental financing with SBA 504 loans
mport/export loans
ank financing © 2009 Wright Business Institute, Inc. 44

45. Other Financing
ngel Investors
enture Capital
nvestment Bankers
easing
ell Stock (IPO)
© 2009 Wright Business Institute, Inc. 45
erge