<< . .

. 12
( : 28)



. . >>

Personnel
Salaries
Bonuses
Payroll taxes
Group life & health insurance
Workers compensation insurance
Employee benefit plans
Officers™ salaries
Employment expense
Training
Temporary help
Total Personnel
Facilities
Rents
Property tax
Repairs & maintenance
Utilities
Property & liability insurance
Total Facilities
Administration
Accounting services
Automobiles
Bank charges
Computer supplies
Charitable contributions
Depreciation & amortization
Dues & subscriptions
Interest expense
Legal services
Licenses
Miscellaneous
Office supplies
Other professional services
Telephone
Travel
Total Administration
Total Overhead Expenses
Income ( before taxes)
Income taxes




99
Net Income
100 Set High Standards



• Are variances in cost of goods sold influencing your gross profit
margin?

• Are your variances in the areas most companies find difficult to
control: sales, marketing, and personnel?

• If the variance is negative, can you make immediate changes in
your operations that will reduce the variance from budget?

• If the variance is positive, are you spending enough to support
(what is probably) the increase in sales? Do you expect this in-
crease in sales to continue?
101
Understanding the Numbers



SAME MONTH LAST YEAR VARIANCE REPORT

Budgets can be wildly above or below actual performance. Unforeseen
factors can change the business a company does in a given time period.
Projections”even good ones”are always suspect. However, last year™s
actual numbers are real, and it™s important to take them into account.

This exercise allows comparison between individual months this year
with the same months last year. This comparison allows for cyclical trends
and historical perspective that many managers use as a basis for forecast-
ing. It™s important to compare your current numbers to prior years,
especially when you™re trying to grow a company. At publicly traded com-
panies, stockholders always want to see if the company is doing better
than last year.



Making It Happen

For the same month last year, enter your sales and expense numbers
on Worksheet 3.5. Then use the same numbers from the Budget Variance
Worksheet (3.4) to fill in the second column for the current month. Sub-
tract last year from this year, and divide that number by last year to get
the percent difference. A positive percentage indicates an increase from
last year to this year. Do the same calculations again with year-to-date
numbers.



Reality Check

Consider these questions about your completed worksheet:

• If the variance is great, again, do some investigation into what
changed from last year.

• Are there variances that are greater than 10 percent? If so, can
you explain them in a way that makes sense?

• Are your expenses up in any one category more than another?

• If the variance comes in the year-to-date column, in what month
did it begin to occur?

• Are you prepared for any cyclicality you see with adequate cash?
102 Set High Standards



Worksheet 3.5
Same Month Last Year Variance Report
Month-to-Date Year-to-Date
Last This Last This
Year Year Difference Year Year Difference
($) ($) (%) ($) ($) (%)
Sales
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
Salaries
Sales commissions
Direct mail
Advertising
Publicity
Consulting
Other sales & marketing expenses
Total Sales & Marketing Expenses
Overhead Expenses
Personnel
Salaries
Bonuses
Payroll taxes
Group life & health insurance
Workers compensation insurance
Employee benefit plans
Officers™ salaries
Employment expense
Training
Temporary help
Total Personnel
103
Understanding the Numbers



Worksheet 3.5 (Continued)
Month-to-Date Year-to-Date
Last This Last This
Year Year Difference Year Year Difference
($) ($) (%) ($) ($) (%)
Facilities
Rents
Property tax
Repairs & maintenance
Utilities
Property & liability insurance
Total Facilities
Administration
Accounting services
Automobiles
Bank charges
Computer supplies
Charitable contributions
Depreciation & amortization
Dues & subscriptions
Interest expense
Legal services
Licenses
Miscellaneous
Office supplies
Other professional services
Telephone
Travel
Total Administration
Total Overhead Expenses
Income ( before taxes)
Income taxes
Net Income
104 Set High Standards



ANALYSIS OF CASH POSITION

Worksheet 3.6 shows where money went besides paying for the expenses
itemized in the income statement. A company made money but doesn™t
have cash to show for it. Why? Where did the cash go, how much was
used by the operations, and how much was consumed by other things,
such as asset purchases or paying down debt? This worksheet will ana-
lyze where the company™s cash comes from and where it goes.

Worksheet 3.6 is a variation of the accountant™s statement of changes in
cash, which is a required part of a publicly traded company™s financial
reporting.



Making It Happen

There are three areas of cash use shown in this worksheet:

1. Cash used for operations. Cash flows from operating activities are
generally the cash impact of changes in working capital ac-
counts and from the basic operations of the company. Examples
of increases to cash include net income, collection of accounts re-
ceivable, decreases in inventory, and depreciation. Examples of
decreases to cash include a net loss, increases in accounts receiv-
able balances, increases in inventory, and payments of accounts
payable.

2. Cash used for investing activities (buying fixed assets, making ac-
quisitions).

3. Cash used for financing activities (repayment of bank debt, long-
term leases).

Enter the numbers for both the current month and year to date from your
income statement (first line only) and balance sheet (remainder of the
worksheet), and total the numbers in the shaded boxes to find net in-
crease or decrease in cash for the period.

This is a complex worksheet. You may wish to get assistance from your
CPA, especially if you have sales and fixed asset changes during the
period.
105
Understanding the Numbers



Worksheet 3.6
Analysis of Cash Position
Current Month Year-to-Date
($) ($)
Operating Activities
Net income (Loss)
Adjustments to reconcile net income/Loss to cash
Depreciation & amortization
Changes in Assets & Liabilities
(Increase) Decrease in accounts receivable
(Increase) Decrease in inventory
(Increase) Decrease in prepaid expenses
(Increase) Decrease in other current assets
(Increase) Decrease in accounts payable
(Increase) Decrease in current portion long-term debt
(Increase) Decrease in accrued liabilities
Total Adjustments
Net Cash Provided by (Used for) Operating Activities
Investing Activities
Additions to fixed assets
(Increase) Decrease in other assets
Other
Net Cash Provided by (Used for) Investing Activities
Financing Activities
Line of credit borrowings (repayments)
Principal payments on long-term debt
Net Cash Provided by (Used for) Financing Activities
Net Increase (Decrease) in Cash for the Period
Cash at Beginning of Period
Cash at End of Period
106 Set High Standards



Reality Check

Consider these questions about your completed worksheet:

• Was there a net increase or decrease to your cash for the period?
For the year?

• Was the change from operational factors, investing factors, or fi-
nancing factors?

• Are there changes you can make to positively influence your cash
position?

• Is the company generating positive cash flow from operations?

• If the company is losing money, how is that loss being financed?
With new equity? With payables?
107
Understanding the Numbers



KEY FINANCIAL INDICATORS

Worksheet 3.7 provides a one-page comparison of all of the key financial
numbers comparing two years past to the current year. Used well, it will
give managers a broad view, over three years, of trends in their business
that relate to cash. For example, when I was running my company, I used
this sheet at board meetings and with employees to illustrate, in simple
terms, how the company was doing. It is a communications tool for dis-
playing analysis I™ve done in other worksheets and exercises.

You may also find you need to develop key indicators that are particular
to your business that may be more operational than financial. Examples
include the number of projects completed, number of clients, profit as
percentage of sales, returns for the month, employee turnover, and num-
ber of customer complaints.



Making It Happen

Keep a running total on all major financial numbers”cash, revenue, ex-
penses, and income”and enter the current month when available. Record
accounts receivable and accounts payable days, as well as total accounts
receivable.



Reality Check

Consider these questions about your completed worksheet:

• Are the long-term trends (three completed years) what you want
them to be?

• Have expense increases outpaced revenue increases?

• Are accounts receivable days and accounts payable days increas-
ing or decreasing?

• Are overdue accounts receivable increasing or decreasing?

• Does this worksheet accurately display the financial strengths
and weaknesses that your company has?
Worksheet 3.7




108
Key Financial Indicators
Month
1 2 3 4 5 6 7 8 9 10 11 12
Cash
This year“Projected
This year“Actual
Last year“Actual
Two years ago“Actual
Revenue
This year“Projected
This year“Actual
Last year“Actual
Two years ago“Actual
Expenses
This year“Projected
This year“Actual
Last year“Actual
Two years ago“Actual
Income Year-to-Date
This year“Projected
This year“Actual
Last year“Actual
Two years ago“Actual
Accounts Receivable Days
This year
Last year
Two years ago
Accounts Payable Days
This year
Last year
Two years ago
Accounts Receivable
Current
30+
60+
90+
120+
Total




109
110 Set High Standards



FINANCIAL REPORT TO EMPLOYEES

Worksheet 3.8”also a communications tool”provides a simple way to
keep employees informed about key indicators on which they can have
an impact and help keep the company financially healthy.

Consider sending this worksheet and its attachments to all employees
every month. In addition, have a monthly meeting to go over these num-
bers and answer questions about what they mean and how they relate to
each job done in the company.


<< . .

. 12
( : 28)



. . >>