Post on 01-Nov-2014
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Sigma FreePresents…
Provided by Sigma College of Small Business, Inc.
Follow the MoneyFind the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.2
Introductions
Keynote Topic
Follow the MoneyFind the Value in Knowing Your Financials
Keynote Conclusion
Follow the MoneyFind the Value in Knowing Your Financials
Break – Refreshments and Networking
Ask Questions Any Time
Agenda
Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.
Financial StatementsNot Just for Banks and Accountants
• Banks– Evaluate “health” of the business
– Ability to pay back loans
• Business Owners– Evaluate performance
– Improve the “health” of the business
– Improve ability to pay back loans
– Make sound financial decisions
3Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.
Key Financial Statements
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2008Profit and Loss Statement
2008Statement of Cash Flows
2008Statement of Owner Equity
Balance Sheet12/31/2007
Financial Position at a specific point in time
Balance Sheet12/31/2008
Financial Position at a specific point in time
Summary of transactions over a period of time that accounts for differences
between balance sheets
Account Balance:$1,000
Account Balance:$2,000
How did the balance go from $1,000 to $2,000
Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.
Balance Sheet
5
AssetsOWNED
LiabilitiesOWED
Owner EquityAssets ‐ Liabilities
Owner’s Equity = Assets ‐ Liabilities
Current AssetsQuickly convertible to cash
(bank accounts, accounts receivable, inventory)
Fixed AssetsNot quickly convertible to
cash(equipment, facilities)
Current LiabilitiesTo be paid within12 months(loan payments for year, accounts
payable, payroll liabilities)
Long Term LiabilitiesDue beyond 12 months
(Long term loans)
Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.6
Widgets, Inc.Balance Sheet Assessment
Balance Sheet is a “Snap Shot” in time
Total Assets = Total Liabilities + Owners Equity
Analyze “trends” for changing
financial positions
Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.
Profit and Loss Statementaka The Income Statement
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Revenues
Expenses
Net IncomeRevenues ‐ Expenses
Gross RevenueTotal amount brought in from
operationsaka Sales, Gross Sales, Net Sales
“Operating” ExpensesPaid for selling and delivery(payroll, marketing, administration)
Interest, Taxes and AmmortizationNot “operational”
Gross MarginAmount left over after the “Cost of Goods Sold” (COGS)
aka Gross Profit, Margin
Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.
Widgets, Inc.Profit and Loss Statement
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Income Statement tracks across a time
period
Analyze “trends” for changing operations
Operational Earnings
Impact of Financial Decisions
Follow the Money – Find the Value in Knowing Your Financials
Sigma FreePresents…
Provided by Sigma College of Small Business, Inc.
Follow the MoneyFind the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.
Ratio Analysis
• Liquidity– Analyze ability to meet current obligations
• Ratio Trend Analysis– Compare line items with a basis
• Total assets or Gross revenue
• Return on Investment– Compares result with the assets or investment available
• Inventory– Evaluate efficiency in which inventory is managed
10Follow the Money – Find the Value in Knowing Your Financials
Separates comparison from the number magnitude‐ Compares “apples to apples”
Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.
Widgets, Inc.
Ratio Analysis ‐ Liquidity
• Actual asset values go up• Decline in ratios indicate a weaker, more “leveraged” financial position
• Indicators that company is positioned for growth• Equipment purchase
• Higher inventory and A/R
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•Working Capital
• Current Assets – Current Liabilities• Current Ratio
• Current Assets / Current Liabilities• Acid Test or Quick Ratio
• (Current Assets – Inventory) / Current Liabilities
Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.Copyright 2010 Sigma College of Small Business, Inc.12
Decrease in the relative Gross Margin
More assets, but less income – reduced ROIMore efficient
inventory management
Result of increased leverage
Return on AssetsNet Income / Ave. total Assets
MarginNet Income / Sales
TurnoverSales / Ave. total Assets
Follow the Money – Find the Value in Knowing Your Financials
Widgets, Inc.Ratio Analysis‐ Performance
Copyright 2010 Sigma College of Small Business, Inc.
Management Statements
• Project and Job Statements– Compare job revenue to job expenses– Determine job profitability
• Customer Statements– Compare long term value of cutomers– Track customer type to identify your best markets
• Managerial Accounting– Measure the direct costs of products and process– Evaluate and assign overhead– Identify and track improvement efforts
13Follow the Money – Find the Value in Knowing Your Financials
Copyright 2010 Sigma College of Small Business, Inc.
Critical Business Areas
Strategy and Planning
Marketing and Sales
Accounting and Finance
Operations and Quality
Leadership and Administration
Technology and Innovation
Sigma College of Small Business
• Upcoming SigmaFree Classes– 2/9 – Choosing the Right Advertising
– 2/16 – What’s New? Technology and Innovation for Small Business
• Upcoming Sigma College Course– Marketing and Sales for Small Business
• Thursdays, 7:30am‐9:30am, 2/11‐3/4, 4 weeks
• Wednesdays, 3pm‐5pm, 2/17‐3/10, 4 weeks
– Free personal consult
– “Flex” schedule – attend either class
14Dedicated to the Learning Needs of Small Business!