<< . .

. 11
( : 28)

. . >>

Total Personnel
Property tax
Repairs & maintenance
Property & liability insurance
Total Facilities
Accounting services
Bank charges
Computer supplies
Charitable contributions
Depreciation & amortization
Dues & subscriptions
Legal services
Office supplies
Other professional services
Total Administration
Total Overhead Expenses
Income ( before taxes)
Income Taxes

Net Income
90 Set High Standards


Worksheet 3.2 illustrates items in your balance sheet in a format for easy
analysis, month to month. It™s a statement of what the company owns at
a fixed point in time. It remains important to look at changes occurring
from month to month because there is a direct relationship between
changes in balance sheet and cash flow.

The Year-at-a-Glance Balance Sheet allows you to track balance sheet ac-
counts for trends. It also allows a measurement system to track goals you
may have to decrease inventory or decrease accounts receivable (both of
which would increase cash).

The most important accounts to focus on are cash, accounts receivable,
inventory, fixed assets, and accounts payable. More obscure accounts
such as other assets generally don™t change much month to month, so you
don™t need to focus on them. This format allows you to see important
changes if they occur.

More aggressive owners and managers pay close attention to accounts
receivable and payable on this worksheet. Accounts receivable and
payable affect cash flow in mercilessly direct ways:

• If accounts receivable goes up, cash goes down.
• If inventory goes up, cash goes down.
• If accounts payable goes down, cash goes down.
• If fixed assets go up, cash goes down.

Making It Happen

Find the following items from your monthly balance sheet and enter each
month on the worksheet. You will usually find these items on the balance
sheet categorized as current (usually one year or less) or long term.

Current Assets
Accounts receivable”money owed to you by your customers.
Inventory”your product waiting to be sold, either at your location or
at a store.
Worksheet 3.2
Year-at-a-Glance Balance Sheet
1 2 3 4 5 6 7 8 9 10 11 12
Accounts receivable
Prepaid expenses
Other current assets
Total Current Assets
Fixed Assets
Accumulated depreciation
Net fixed assets
Intangible assets
Other assets
Total Assets
Current portion long-term debt
Notes payable
Accounts payable
Accrued liabilities
Other current liabilities
Total Current Liabilities
Long term debt
Other liabilities
Total Liabilities
Common stock
Paid in capital
Retained earnings
Total Equity

92 Set High Standards

Prepaid expenses”items such as insurance or taxes (e.g., an insurance
premium is paid upfront for a whole year; this entry spreads it out over
the policy period).
Other current assets”miscellaneous items such as rent deposits.
Fixed assets”real property, equipment, and leasehold improvements.
Accumulated Depreciation.
Net Fixed Assets.
Intangible Assets”good will, intellectual property (rights, trade-
marks, patents).

Current Liabilities (an amount you owe to someone else, generally to be paid
within one year)
Notes payable.
Accounts payable.
Accrued liabilities.

Long-Term Debt
Retained earnings”the amount of net income the company has earned
and kept since the first day of the business, less dividends to share-

Reality Check

Consider these questions about your completed worksheet:

• Are your accounts receivable and accounts payable accounts up
or down over the period?
• Are there sharp variations during certain peak periods or seasons?
• Is your cash consistently at a comfortable level for operating the
• What is the current trend in inventory levels?
• Has your company acquired fixed assets in accordance with capi-
tal budgets?
Understanding the Numbers


This exercise pulls together useful information from both the balance
sheet and income statement and calculates some ratios to give you an
idea of the financial health of the company and how it changes month to
month. The ratios included here are generally computed for whole indus-
tries. It is useful to compare your numbers to your industry.

The balance sheet items are asset management related and tell you how
well you are doing increasing the value of what you own. The income
statement items are related to profitability and tell you how well you are
doing in that area.

Worksheet 3.3, as with the other year-at-a-glance worksheets, gives you a
quick indication of how things are changing over time. The problem with
financial statements is that you can™t tell whether things have gotten bet-
ter this month or worse. These worksheets will let you know immedi-
ately if there is a sudden downturn or a trend in that direction so that
you can take corrective action.

Making It Happen

Find the numbers for the first four categories from your income state-
ment and enter them for the appropriate month. Also enter the number
of people you currently employ. Divide sales by number of employees to
get the number for the last category under the income statement, sales
per employee.

Enter the numbers for the first three entries under the balance sheet col-
umn. The remainder of the categories are calculated as follows:

Sales. Take this item from your income statement.
Gross profit margin. This ratio is sales minus cost of goods sold divided
by sales.
Pretax profit. Take this item from your income statement.
Cumulative net income. An aggregate of the monthly income figures
listed for the year to date, this tells you how close you are to your pro-
jections for the year.
Number of employees. Take this item from your payroll projection work-
Worksheet 3.3
Year-at-a-Glance Financial Analysis
1 2 3 4 5 6 7 8 9 10 11 12
Income Statement
Gross profit margin
Pretax profit
Cumulative net income
Number of employees
Sales per employee

Balance Sheet
Total current assets
Total current liabilities
Working capital
Current ratio
Sales to assets
Return on assets
Debt to equity
Accounts receivable days
Accounts payable days
Inventory turnover (annual)
Inventory turn days
Understanding the Numbers

Sales per employee. This number divides sales figure by the number of
people the company employs to generate that figure. This is a popular
tool for determining a company™s efficiency”though standards change
dramatically by industry.

Total current assets. Take this item from the balance sheet.

Total current liabilities. Take this item from the balance sheet.

Working capital. The amount by which current assets exceed current

Current ratio. A basic test of solvency, you obtain this number by divid-
ing the current assets of your company by current liabilities.

Sales to assets. A measure of how aggressively the business pursues
sales, this figure (total current assets divided by sales) helps analysts
determine how much unrealized sales potential a company might have.

Return on assets. This figure (pretax profit divided by total assets)
compares profit with the amount of assets used to earn that profit. Ac-
ceptable figures vary from industry to industry.

Debt to equity. This figure (total liabilities divided by net worth or
shareholders™ equity) relates the company™s debt to the strength of the
equity in the company by owners or stockholders.

Accounts receivable days. First, divide sales by accounts receivable to ob-
tain accounts receivable turnover. Then, divide 365 by the turnover
figure. The result (also called collection period ratio) indicates how
many days others are taking to pay you.

Accounts payable days. First, divide cost of goods sold by accounts
payable to obtain accounts payable turnover. Then, divide 365 by the
turnover figure. The result indicates how many days you™re taking to
pay your bills. It also tells analysts about your company™s liquidity.

Inventory turnover (annual). This figure (cost of goods sold divided by
the inventory item from your balance sheet) provides an indicator of
how many times a year your company turns over its entire inventory.

Inventory turn days. Obtained by dividing 365 by the annual inventory
turnover figure, this figure gives you a time period to compare directly
with the accounts receivable and payable numbers listed previously.

This worksheet will be very valuable when you™re dealing with poten-
tial lenders or investors. In this context, financial analysts sometimes
96 Set High Standards

ask for ratios not included on this worksheet. Some of the most impor-
tant include:

Current liabilities/inventory. Obtained by dividing current liabilities by
the value of current inventory, this figure tells managers how much
the company relies on funds yet to be obtained from unsold invento-
ries to meet its debt obligations.

Net sales/working capital. By measuring the number of times working
capital turns over annually in relation to net sales, this ratio provides
information about whether the business relies too heavily on credit to
maintain its sales effort.

Return on investment. This figure prorates net profit by an individual
investment vehicle™s percentage of a company™s total capitalization. It
tells investors how soon they will recoup their money; it tells man-
agers what form investments should take (limited partnerships, pre-
ferred or common stock, etc.).

Current liabilities/net worth. Considered by some lenders the most im-
portant test of a company™s solvency, this figure indicates the amount
due creditors within a year as a percentage of the investment in the
business by owners or stockholders.

Reality Check

Consider these questions about your completed worksheet:

• Which numbers are trended in a positive direction and which in a
negative direction? Are your ratios in line with industry averages?

• Which ratios concern you most? Are these issues that require im-
mediate solutions (e.g., the current ratio) or long-term solutions
(e.g., sales per employee)?

• Is the overall financial condition of the company getting better or

• Can unusual or negative trends be explained satisfactorily?

• Are there other ratios that are particularly important to your
business that should be included?
Understanding the Numbers


Managers go through all the effort of making a budget each year, but un-
less they compare their actual financial picture to what they budgeted,
doing the budget remains a meaningless exercise. Budget variance is a
wake-up call for managers to make midcourse corrections and to replan
for the remainder of the year. With any variance, a manager should inves-
tigate what™s gone right or wrong and hold people accountable for their

Worksheet 3.4 gives an easy way to compare actual numbers each month
to budget numbers, both for that month and the year-to-date (cumulative
for the whole year). This worksheet is also useful for employee meetings
and board of directors meetings.

Making It Happen

Enter your budget numbers for each item for the current month. Then
enter the actual numbers that correspond to each category. In the third
column, take the difference between the two (actual minus plan), and
enter it in the $ variance column. For expense items, a negative number
means you™re under budget and a positive number means you spent
more than you expected. Last, calculate the percent variance by divid-
ing the $ variance by the plan $. A negative $ variance will result in a
negative percent variance. Complete the whole exercise again for year-
to-date numbers.

Notice that all the reports in this section have the same categories in the
same order as the original budget. This makes comparisons between
budget and actual much easier.

Reality Check

Consider these questions about your completed worksheet:

• Are there variances from budget of 10 percent or more (and/or
$1,000 or more)? What accounts for these?

• If these variances are in the year-to-date column, are they also in
the current month, or did they take place in a prior month?
Worksheet 3.4

Budget Variance Report
Month-to-Date Year-to-Date
Plan ($) Actual ($) ($) Variance (%) Variance Plan ($) Actual ($) ($) Variance (%) Variance
Cost of Goods Sold
Beginning inventory
Materials purchased
Salaries & wages
Production supplies
Temporary help
Shipping supplies
Mailing & shipping
Less ending inventory
Total Cost of Goods Sold
Gross Profit
(Sales ’ Total cost of goods sold)
Gross Profit % (Gross profit/Sales)
Sales & Marketing Expenses
Sales commissions
Direct mail
Other sales & marketing expenses
Total Sales & Marketing Expenses
Overhead Expenses

<< . .

. 11
( : 28)

. . >>