ACCOUNTING FOR THE NUMBERPHOBIC A Survival Guide for Small Business Owners. Professor Dawn Fotopulos Founder, Best Small Biz Help.

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1 ACCOUNTING FOR THE NUMBERPHOBIC Professor Dawn Fotopulos Founder, Best Small Biz Help.com

2 W h e n e v e r y o u s e e a s u c c e s s f u l b u s i n e s s, s o m e o n e o n c e m a d e a c o u r a g e o u s d e c i s i o n P e t e r D r u c k e r 2

3 H o w t o u n d e r s t a n d y o u r F i n a n c i a l S t a t e m e n t s ( a n d f i n d i n n e r p e a c e ) 3

4 The 3 big questions Are you making a profit? Is there enough cash to run the business? Is the business building wealth or destroying it? 4

5 Did You Know Learn how to read your financial dashboard and you re ahead of 99% of small business owners. 50% of small businesses fail in the first five years; but those who know how to read their financials have a much better chance for survival. Your accountant isn t responsible for reading your financial statements than your mechanic is going to drive your car 5

6 D o y o u d r i v e y o u r c a r w i t h y o u r e y e s c l o s e d? No! Then don't run your Small Business without knowing how to read your financial dashboard. 6

7 Your financial dashboard Three Key Gauges: Chapter 1 Net Income Statement Cash Flow Statement Balance Sheet 7

8 Are you making money? Showing a profit Net Income is positive Showing a loss Net Income is negative Breaking even Net Income is zero 8

9 Myth: You re in the BHPH business Truth: You re financiers in the loan origination and collections business 9

10 Myth: A larger BHPH business is a more profitable business. Truth: You could be digging a deeper hole. No risk diversification within portfolio- collections and defaults will determine if you get to live another day 10

11 Myth: If I sell a certain number of cars per month, my business is viable. Truth: Unless you can keep your defaults below 30%, hitting sales targets will not solve the problem. Selling 500 cars and repossessing 400 isn t a business; it s a set up for bankruptcy. 11

12 Myth: As long as you can service your bank loans, your business is sound. Truth: You must have a plan to pay back principle, not just interest. If principle owed keeps getting bigger and cash flow isn t growing faster, you have a problem. 12

13 Myth: My credit line is to cover pay payroll Truth: If you have to dip into your credit line to cover payroll on a regular basis, you don t have enough Gross Margin to run the business. 13

14 Myth: Success is Not Measured by the Number of Deals Truth: Success is measured by your profits and cash flow. I ve never seen anybody going out of this business by selling too few cars I ve seen a lot go out of business they sell too many 14

15 Net Income Statement: Chapters 2 & 3 Making a profit or showing a loss Money in; Money Out Money In; Net Revenues from sales Money Out; Expenses to run the business Ratios help keep the business in balance Net Income Ratio You Run the Business on Gross Margin What s your industry norm? 15

16 Gross Margin Ratio must be 30% or higher to stay in business 16

17 Net Income Statement Grow Revenues Profitably Repeat business HBS Rule Leverage online assets to attract and celebrate customers- mobile ready, consistent message What cars are the most profitable; fewer with greater gross margin is better than more sales with cars that won t hold up Solving problems real time reduces default risk Are you fundamentally creating a loss with each transaction? 17

18 Net Income Statement Reduce Variable Expenses-Time is Your Silent Thief Better ROI for SGA: Cross Training, coach for problem solving Reducing cycle time: 2 hrs from the time someone is on the lot, test drive, loan app, closed deal Integrate accounting, CRM, credit systems- 360 degree of customers 18

19 ACCOUNTING FOR THE NUMBERPHOPIC Your Business Could Be Showing A Profit While Going Bankrupt 19

20 Cash Flow Statement: Chapter 5 Checkbook- starting cash, cash in, cash out, ending cash Gas in your tank- how far you can travel how long you can run the business w/o needing more cash Gas gauge doesn't tell you to buy gas You must interpret where the needle is 20

21 Cash Flow Statement: Chapter 5 Understand your portfolio better-vin Solutions- predict where the risk is Improve cash flow by managing portfolio risk and liquidity better Cutting losses sooner Selling paper sooner for liquidity 21

22 Cash Flow Statement: Chapter 5 Slow down sales to build up cash Shift the balance of time from sales to collections No matter how good I am at sales, if they don t have the money, they don t have it Do you have a pay-off plan for your bank credit lines? 22

23 Cash Flow Statement: Chapter 5 Key Questions What s your bottom line net- how much cash did you keep after you paid everyone Can you pay your floor plan when you have bills coming due next week Can you pay payroll next week without dipping into your credit line? How often did you have to dip into your credit line in the last six months to make payroll? Floorplan? 23

24 Why Revenues And Cash Aren t the Same Delays in payment Discounts to payment Bankruptcies Book Net Revenues when they happen for accurate sales cycle reporting Book cash in when it arrives- accurate cash cycle reporting 24

25 I t s Easy to Improve Cash Flow: Chapter 6 Invoicing policies Collections policies Relationship building with clients All affect cash flow- keep it healthy 25

26 What s the Value of the Business? Just the salvage value of the desks, computers? Do businesses have terminal value? Can they be sold for more than annual revenues? Yes! 26

27 How to Win Friends and I nfluence Bankers! Chapter 8 Balance Sheet- Net worth statement of the business Personal net worth- business net worth Relationship between what you own; what you owe Same for the business; relationship between assets (own) and liabilities (owe) 27

28 Net Worth= O wner s Equity Chapter 9 Positive Net Worth or Net Worth that increases over time Negative Net Worth or Net Worth that degrades over time Something must change to avoid bankruptcy How? 28

29 N e t Wo r t h = O w n e r s E q u i t y Chapter 9 Assets- Liabilities= Owner s Equity If your current assets are larger than your current liabilities, you re bankrupt it s only a matter of when Overleveraged is the kiss of death- how do you know when you re getting to that point? How often do you look at your ratios? How often do you visit your cash? If you have to stretch the payment length to reduce monthly nut for buyer beyond the useful life of the car, you re paying salesmen commissions to book a loss. Don t do it. 29

30 Net Worth= O wner s Equity Chapter 9 Assets- Liabilities= Owner s Equity If you have to stretch the payment length to reduce monthly nut for buyer beyond the useful life of the car, you re paying salesmen commissions to book a loss. Don t do it. 30

31 O ur Mission to Save Struggling Small Businesses Not just read, interpret, make course corrections Anticipate what will happen You're running the business The business isn't running you! 31

32 Interview with Norm Brodsky Chapter 10 A business is all about the numbers. Most businesses could make it if the owners knew even the very basics of reading their financial dashboard. 32

33 Remember: The financial dashboard is your GPS Net Income- showing profit, break even, loss Cash Flow- enough to run the business/ how long Net Worth-building or destroying wealth Understand your dashboard; reduce risk 33

34 Available: Amazon.com Barnesandnoble.com Indiebooks.com 34

35 Free live event Thursday, August 13 th noon Thank you! 35