Growth through Metrics &

a Discussion on CashChris James - Partner B2B CFO®

cjames@b2bcfo.com

Lack of quantifiable objectives can lead to…

Customer churn

Weak revenue

Poor margins

Employee turnover

Low business value

Effective Business Metrics6

Why Metrics?1

More Focus – reducing noise

Better Vision. – more insights into your business and industry.

Better Decisions using a simple framework

SMART Metrics2

Specific, Measurable, and Timely

Four to six is a good number

Focus team efforts

Feed company culture

Promote Success

Key Business Objectives3

Improve Business PerformanceRevenue management Cost control and reduction

Improve Organizational PerformanceQuality controlCustomer SatisfactionCycle time management

Metrics Examples4

Financial - Gross Margin, Overheads, Collections, Cash cycle

Customer - On time delivery, Complaints, New customers acquired

Internal Processes - Rework, Labor utilization, Overtime

Learning - Employee satisfaction index, Number of cross trained employees

Managing with Metrics5

Choose key performance indicators

Monitor long term trends

Compare with plans and forecasts

Dashboard for easy review

Review annually

Cash Forecasting is Critical

W/E 07/4 W/E 07/11 W/E 07/18 W/E 07/25  

July    

Wk1 Fcst Wk1 Act Wk2 Fcst Wk2 Act Wk3 Fcst Wk3 Act Wk4 Fcst Wk4 Act Total - Fcst Total - Act

Beginning Balance (189,019) (189,019) 73,739 73,739 (33,531) (33,531) 280,115 280,115 (189,019) (189,019)

         

Receipts          

Total Receipts 1,350,000 1,300,694 571,191 562,172 893,548 883,411 727,472 - 3,473,748 2,746,277

         

Disbursements          

To Vendors 481,887 329,756 10,000 22,931 61,992 54,476 464,727 16,865 871,890 424,028

Handchecks 50,000 71,121 50,000 114,749 50,000 45,665 50,000 15,468 281,535 247,003

Formosa costs - payroll         - -

Seacoast costs - payroll 527,058 467,894 373,461 373,461 336,120 336,120 322,424 322,424 1,499,899 1,499,899

Arkansas payroll 95,000 154,164 140,598 140,598 118,503 118,503 132,735 138,199 546,000 551,464

Payroll 15,000 15,000 15,000 17,704 15,000 15,000 15,000 15,000 62,704 62,704

Bankrupcy Settlement         - -

Total Disbursements 1,168,945 1,037,935 589,059 669,443 581,616 569,765 984,886 507,956 3,262,029 2,785,098                    

Ending Cash (7,964) 73,739 55,871 (33,531) 278,402 280,115 22,701 (227,841) 22,701 (227,841)

AdviantFinancial Comparison to Benchmark

  

This is an important metric. In fact, over time, it is one of the more important

barometers that we look at. It measures how many cents of profit the company is

generating for every dollar it sells. Track it carefully against industry competitors. This

is a very important number in preparing forecasts. The higher the better.

This number indicates the percentage of sales revenue that is not paid out in direct costs

(costs of sales). It is an important statistic that can be used in business planning because it indicates how many cents of gross profit can be generated by each dollar of future sales.

Higher is normally better (the company is more efficient).

This metric shows G & A payroll expense for the company as a percentage of sales.

Bright Blue MarketingFinancial Comparison to Benchmark

  

This number reflects the average length of time between credit sales and payment receipts. It is crucial to maintaining positive liquidity. The

lower the better.

This ratio shows the average number of days that lapse between the purchase of

material and labor, and payment for them. It is a rough measure of how timely a

company is in meeting payment obligations. Lower is normally better.

This is another good indicator of liquidity, although by itself, it is not a perfect one. If there are receivable accounts included in the numerator, they should be collectible. Look at the length of time the company has to pay the amount listed in the denominator (current liabilities). The higher the number, the stronger the company.

Solace NetworksFinancial Comparison to Benchmark

  

This Balance Sheet leverage ratio indicates the composition of a company’s total capitalization -- the balance between money or assets owed versus the money or assets owned. Generally, creditors prefer a lower ratio to decrease financial risk while investors prefer a higher ratio to realize the return benefits of financial leverage.

This ratio measures a company's ability to repay debt obligations from annualized operating cash flow (EBITDA).

Generally, this metric measures the overall liquidity position of a company. It is certainly not a perfect barometer, but it is a good one. Watch for big decreases in this number over time. Make sure the accounts listed in "current assets" are collectible. The higher the ratio, the more liquid the company is.

Nitro Marketing, LLCFinancial Comparison to Benchmark

  

MeasurementActual thru June 2010 Benchmark

Income StatementSales (Income): $ 2,138,350 Cost of Sales (COGS): 381,283

Percent of Sales 17.8% 30.4%G & A Payroll Expense (optional): 622,092

Percent of Sales 29.1% 32.4%Net Profit before Taxes: 196,160

Percent of Sales 9.2% 8.7%

Other Metrics:

Sales per employee $ 388,791 $ 185,868

Return on Assets 178.4% -0.1%

Comments:G&A Payroll is increasing. Should understand why.Are income taxes being planned for?Is a credit line available to help address uncertainty?Does the business owner have clarity for the future? his appears to be a significantly valuable company. Protect yourself.Excellent cash flow with little working capital used for the business.

Break

Small Groups should discuss their reports and generate questions - 30 minutes?

Cash… the Lifeblood

What’s Your Pulse?

4 Stages of CashStage 1: Infrastructure Creation

Owner’s Activities• Building relationships with customers• Creating relationships with vendors• Delegating tasks to employees or associates• Causing sales and cash to come into the company

Stage 2: Infrastructure Peak

The result of Infrastructure Creation is Infrastructure Peak• Few customer complaints• High customer service• Low overhead• Company runs “lean and mean”• Short cash collection cycles• Personal sacrifice by the Finder

Stage 3: Outgrowth

Result of running lean is burn-out of owner and employees Attitudes change, owner thinks:

“I should have a raise”“We need more people so we can take time off”“We need a better building”“I need a new car/house/vacation……”“We should buy more equipment or inventory”

Goal clarity

Increased profits and cash

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