Profit Mastery Powerpoint Slides 9-26-12 Michael D'Hoostelaere Maricopa SBDC

1. Profit Mastery – Program
Overview
.

2. The SBDC
The Maricopa Community Colleges Small Business
Development Center helps small businesses
succeed by providing:
 Confidential, one-on-one counseling by diverse business
professionals to small businesses at no charge
 Business information and educational resources
 Low cost seminars and workshops, on-line seminars (self
service 24/7), live webinars
Since opening, the Maricopa SBDC has served
nearly 55,000 potential and existing small business
owners
Profit Mastery is a core course offering by the SBDC

3. Profit Mastery Content
Seven Steps to Building Value
1. Plan Properly
2. Monitor Financial position
3. Understand Price, Volume, Cost
4. Manage Cash Flow
5. Manage Growth
6. Finance Properly
7. Plan for Transition

4. Monitor Financial Position
Measure your
performance.
Why?

5. Monitor Financial Position
What Gets Measured
Gets Managed
and
What Gets Managed
Gets Done!

6. Financial Operating Cycle
Profit Cash
Income Statement Balance Sheet
Sales
Assets = Liabilities + Net Worth
Net Profit
Efficiency
Uses of Profits:
1. To pay for new assets
2. To pay off debt
3. To pay out to the owners

7. Measure Against Peers
Ratios Level the Field
1. Ratios are comparisons of relative
performance
2. Ratios allow you to directly compare
dissimilar size businesses
3. There are standard ratios used in business
4. Data on peer groups is readily available

8. Typical
Ratio Analysis Spreadsheet
Industry Calculations,
2006 2007 2008 Composite Trends, or
Observations
Scorecard
BALANCE SHEET RATIOS: Stability (or “Staying Power”)
Current Current Assets 726,100
1. 1.7 1.1 0.99 1.8
Current Liabilities 734,400
Quick Cash + Accts. Rec. 282,300
2. 0.8 0.5 0.38 0.8
Current Liabilities 734,400
Debt-to-Worth Total Liabilities 823,700
3. 1.5 1.4 2.68 1.2
Net Worth 307,300
INCOME STATEMENT RATIOS: Profitability (or “Earning Power”)
Gross Margin Gross Profit 400,000
4. 21% 20% 18.5% 22.2%
Sales 2,160,000
Net Margin Net Profit Before Tax 6,300
5. 3.5% 3.0% 0.29% 3.2%
Sales 2,160,000
ASSET MANAGEMENT RATIOS: Overall Efficiency Ratios
Sales-to-Assets Sales 2,160,000
6. 2.3 2.3 1.9 2.4
Total Assets 1,131,000
Return on Assets Net Profit Before Tax 6,300
7. 8.2% 6.9% 0.56% 6.9%
Total Assets 1,131,000
Return on Net Profit Before Tax 6,300
8. Investment
20.9% 16.5% 2.0% 15.8%
Net Worth 307,300
ASSET MANAGEMENT RATIOS: Working Capital Cycle Ratios
Inventory Cost of Goods Sold 1,760,000
9. Turnover
5.6 8.1 4.2 4.9
Inventory 419,000
Inventory 360 360
10. Turn-Days
64 44 86 74
Inventory Turnover 4.2
Accounts Receivable Sales
11. Turnover Accounts Receivable 8.9 10 8 8.5 2,160,000
270,000
Accounts Receivable 360 360
12. Turn-Days
40 36 45 43
Accts. Rec. Turnover 8
Accounts Payable Cost of Goods Sold 1,760,000
13. Turnover
12 10.4 5.7 9.8
Accounts Payable 310,100
Average Payment 360 360
14. Period
30 34 63 37
Accts. Pay. Turnover 5.7

9. Using a Scorecard to Measure
INCOME STATEMENT RATIOS: Profitability (or “Earning Power”)
Us Industry
Gross Margin Gross Profit 18.5% 22.2% 400,000
Sales 2,160,000
For every $1 of (bottom #), there is $X of (top #)

10. Low Gross Margin
What’s their Low Gross Margin costing?
Their Peers’ Margin: 22.2%
Their Margin in 2007: 18.5%
Difference 4%
Sales: $2,000,000
X margin difference: X .04
Margin $ Left on the Table: $80,000
Primary Impact: Profit

11. Using a Scorecard to Measure
ASSET MANAGEMENT RATIOS: Working Capital Cycle Ratios
’05 ’06 ’07 Industry
9. Inventory Cost of Goods Sold 5.6 8.1 4.2 4.9 1,760,000
Turnover Inventory 419,000
10. Inventory 360 64 44 86 74 360
Turn-Days Inventory Turnover 4.2
11. Accounts Receivable Sales 8.9 10 8 8.5 2,160,000
Turnover Accounts Receivable 270,000
12. Accounts Receivable 360 40 36 45 43 360
Turn-Days Accts. Rec. Turnover 8
13. Accounts Payable Cost of Goods Sold 12 10.4 5.7 9.8 1,760,000
Turnover Accounts Payable 310,100
14. Average Payment 360 30 34 63 37 360
Period Accts. Pay. Turnover 5.7

12. Too Much Inventory
Industry achieves 4.9 turns,
We achieved only 4.2 turns
COGS $1,760,000
= $359,000
Target Inv. Turns 4.9
Actual Inventory $419,000
Targeted Inventory –$359,000
How much too much? $60,000
Primary Impact: Cash

13. Profit Mastery Assessment
Cascade Office Systems
Gross Profit Cash NPBT
Discounts $10,000
Labor Productivity 38,000
Buying 10,000
Pricing 22,000
$80,000
Inventory $ 60,000
A/R $ 16,000
Hidden Costs $19,000
Interest $ 7,000
Refinance Bldg. $ 126,000
Totals $ 202,000 $106,000

14. $16,000(C)
$126,000 (C) $60,000(C)
$10,000(P)
$38,000(P) $10,000 (P) $22,000(P)
$7,000(P)
$80,000(P) $15,000 (P) / $4,000 (P)

15. Cash Flow Worksheet

18. Cash Flow Cycle

19. The Cup Theory
Sales
Contribution
Margin
Variable
Cost
Cup
Fixed
Cost
Cup Net
Profit
For every one dollar additional of fixed costs, Cup
I need X additional dollars in sales.

20. Measure Capital for Growth
Growth Must Be Funded
1. We have assets to deliver sales
2. Causing Accounts Receivable, Inventory,
etc. to grow as sales increase
3. Funds come from:
 Profits
 Trade credit
 Bank credit
 Or, increased efficiency

21. Balance Sheet: at $600,000
Percent of Percent of
Sales* Sales*
Financial
Cash $24,000 4% Note Payable $0
Gap
Accounts Receivable Accounts Payable
108,000 18% 90,000 15%
Inventory 156,000 26% Accruals 42,000 7%
Total Current Total Current
$288,000 $132,000
Assets Liabilities
Equipment 150,000 25% Long Term Liabilities 140,000
Land/Bdg. 120,000 Total Liabilities 272,000
Total Fixed Assets 270,000 Net Worth 286,000
Total Liabilities and
Total Assets $558,000 $558,000
Net Worth

22. Balance Sheet: at $900,000
Percent of Percent of
Sales* Sales*
Financial
Cash $36,000 4% Note Payable $126,000
Gap
Accounts Receivable Accounts Payable
162,000 18% 135,000 15%
Inventory 234,000 26% Accruals 63,000 7%
Total Current Total Current
$432,000 $324,000
Assets Liabilities
Equipment 225,000 25% Long Term Liabilities 140,000
Land/Building 120,000 Total Liabilities 464,000
Total Fixed Assets 345,000 Net Worth 313,000
Total Liabilities and
Total Assets $777,000 $777,000
Net Worth

23. Managed Financial Gap
Percent of Sales* Percent of Sales*
Financial
Cash $36,000 Note Payable $0
Gap
Accounts Receivable 112,500 Accounts Payable 75,000
Inventory 157,000 Accruals 63,000
Total Current Assets Total Current Liabilities
$306,000 $138,000
Equipment 225,000 Long Term Liabilities 200,000
Land/Building 120,000 Total Liabilities 338,000
Total Fixed Assets 345,000 Net Worth 313,000
Total Liabilities and Net
Total Assets $651,000 $651,000
Worth
Balance Sheet Ratios
At $600,000 At $900,000 At $900,000(MANAGED)
Current Current Assets 2.18 1.33 2.22
Current Liability
Quick Cash + A/R 1.00 0.61 1.08
Current Liability
Debt-to-Worth Total Liability 0.95 1.48 1.08
Net Worth

24. Balance Sheet (CF) Checklist
Manage current assets
Restructure debt
Make more profit
Sell existing unproductive assets
Curtail expansion
Lease fixed assets
Implement sale-leaseback of existing fixed assets
Accept more risk
Don’t grow (use pricing, etc. to limit growth)
Get new equity

25. Our Next Profit Mastery Course
When: October 8,15,22,29
8:30 AM – 12:30 PM
Where: CEI/Gateway
275 N. Gateway Drive
Phoenix, AZ 85034
(602) 286-8950
Cost: $195.00 includes materials, plus 6 months of
unlimited access to online support resources.
(Scholarships available for those with
demonstrated need)
Registration: www.maricopasbdc.com Or (480) 784-0590
Instructor: Michael D’Hoostelaere, Business Analyst
Maricopa SBDC
Certified Profit Mastery Instructor