Matt Garrett Matt is an Entrepreneur who found out about ... · • Approve monthly close outEscalated collection/dispute issues • • Approval of journal entries • Chart of Accounts

TGG Accounting | www.mattgarrettonline.com | www.tgg-accounting.com

Matt Garrett

Matt is an Entrepreneur who found out about the power

of proper accounting and excellent financial management

through the sale of his previous two businesses; one

unsuccessful and one extremely successful. He aims to

share those lessons with people to empower them to

achieve financial freedom and peace of mind.

In 2006, Matt founded TGG, an outsourced accounting

and business advisory firm. He started the firm to deliver

financial information to small and mid-sized businesses to

dramatically reduce the business failure rate.

Along with being the founder and CEO of TGG, Matt is a

regular speaker across the country educating business

owners on the need for sound financial practices. He

received his B.S. in Human and Organizational

Development from Vanderbilt University.

[email protected]

mailto:[email protected]

Guiding Success1

The Numbers Aren’t the Most Important Thing –

They’re Everything

Presented to

Matt GarrettEntrepreneur Public Speaker

Founder of TGG Accounting

Who Am I?

Guiding Success2

My Mission

To improve the business success statistics by educating business owners on the value of excellent financial management.

Guiding Success.3

What I Learned…

Accurate Accounting is Mandatory

Guiding Success.4

Small Business Success Rate

What is the small business failure rate in the first 4 years of start-up?

Answer:

A. 20%B. 40%C. 55%D. 75%

Guiding Success.5

Small Business Failure Rate

Guiding Success.6

Net Worth and Business Ownership

What percentage of a business owner’s net worth is in the business?

Answer:

A. Less than 25%B. 25-50%C. 50-75%D. 75%-100%

Guiding Success.7

Business Owner’s Net Worth in the Business

Guiding Success.8

#1 Reason Given for Small Business Failure

Guiding Success.9

Why?

Guiding Success.10

Moral of the Story?

You Can’t Run Out Of Cash…

Guiding Success.11

Successful Sale

How many business owners who start a business have “successfully” sold their business?

Answer:

A. 0-2%B. 2-5%C. 5-8%D. 8-12%

Guiding Success.12

From Start-Up to Successful Sale

Guiding Success.13

#1 Reason Given for Sale Frustration

Missed Expectations

Guiding Success.14

“Expectation is the root of all heartache.” – William Shakespeare

Moral of the Story?

Know business value before a sale

Guiding Success.15

How do you know your value?

You Must Know Your Numbers

Small Business Fraud

How many of you (in your business or practice) have experienced fraud or theft?

Answer:

A. YesB. No

Guiding Success.16

Small Business Fraud Rate

Guiding Success.17

According to the Association of Certified Fraud Examiners 2014 Report

Average Cost Per Occurrence

$154,000Guiding Success.18

According to the Association of Certified Fraud Examiners 2014 Report

Equivalent Sales (if you eliminate fraud)

$3,080,000Guiding Success.19

For a business with an average 10% net profit margin

Accountability Through Accurate Accounting

How many of you believe you and your clients have100% accurate financials?

Answer:

A. YesB. No

Guiding Success.20

Accurate Accounting

inGuiding Success.21

Accurate Accounting is the Answer

Guiding Success.22

3 Rules You Need to Know About Accounting

1) Accrual accounting is the only accounting

Guiding Success.23



2) Accounting needs to be done by more than one person

Guiding Success.24

The Sad Truth About Fraud

Guiding Success.25

Get a Head Start: Efficiency

Guiding Success.26

Accuracy.

Guiding Success.27



2) Accounting needs to be done by more than one person

3) Accounting for small businesses is black and white

Guiding Success.28

Accounting

Guiding Success.29

The Reality The Way It Feels

The Triple Bottom Line

1) Net Operating Profit

2) Net Equity

3) Cash from Operations

Guiding Success.30

Basic Financial Measurements: Triple Bottom Line #1

Net Operating Profit

Guiding Success.31

Net Operating Profit

Profit and Loss Statement

Revenue $2,000,000Cost of Goods Sold $1,200,000 (60%)Gross Profit $ 800,000 (40%)SG&A $ 600,000 (30%)

Net Operating Profit $ 200,000 10%

*Note: Net Operating Profit is the amount before you subtract interest costs and one time business expenses/income items

Guiding Success.32

What is Revenue?

Revenue = Money You Earned

Guiding Success.33

What is Gross Profit?

Revenue – COGS = Gross Profit

Guiding Success.34

What is Cost of Goods Sold?

Guiding Success.35

COGS = Cost of Goods You Sell

1. Direct Labor2. Indirect Labor3. Direct Materials4. Manufacturing Overhead5. Inbound Freight

What is SG&A?

S = SellingG = GeneralA = Administrative

Guiding Success.36

What is Selling?

S = SellingWhat’s that mean?

Commissions

Guiding Success.37

The Impact of COGS

A 4.5% increase in Gross Profit equals

a % increase in Net Income?

Guiding Success.38

The Impact of COGS

Guiding Success.39


Cash from Operations

Guiding Success.40

Cash from Operations

Cash Flow Statement

Profit $200,000Increase in AR ($ 20,000)*Stuff you sold, but didn’t collect

Decrease in AP ($ 10,000)*Stuff you bought and had to pay for

Net Cash from Operations $170,000

Guiding Success.41

A Helpful Key Performance Indicator: DSO

DSO- Days Sales Outstanding

Accounts Receivable Revenue

Guiding Success.42

x Number of Days in the Period

AR $3,000,000Revenue $2,000,000 ($3M ÷ $2M = 1.5)Days 30 DSO 45 Days (30 x 1.5 = 45)

What does it tell you? • How fast are people paying you and how good are your customers

The Impact of DSO

A 4.5 day (10%) improvement in DSO next month equals

$ increase in cash?

Guiding Success.43

The Impact of Collecting Faster (DSO)

$300,000Guiding Success.44


Net Equity

Guiding Success.45

Net Equity

Balance Sheet

Assets $1,000,000*Stuff you own

Liabilities $ 500,000 (50%)*Stuff you owe

Net Equity $ 500,000 50%

Guiding Success.46

Other Helpful Key Performance Indicators (KPIs)

Current RatioCurrent AssetsCurrent Liabilities

*Current Assets are things that turn into cash in the short term (less than 1 year)*Current Liabilities are things that suck cash out of your business in the short term (less than 1 year)

NOTE: A common problem is the misclassification of current vs. long-term assets and liabilities

What does it tell you?• It tells you if you are going to run out of cash!

Guiding Success.47

Thank you

Guiding Success.48

Guiding Success.

For TGG’s newsletter, visit TGG University:tgg-accounting.com/accounting-for-small-business

Guiding Success.49

www.mattgarrettonline.com

Please contact me if you have any questions.Matt Garrett, Founder and CEO, TGG

P 760.697.1033 | [email protected] |

http://tgg-accounting.com/accounting-for-small-business/

http://www.mattgarrettonline.com/


http://www.tgg-accounting.com/

The Numbers Aren’t the Most

Important Thing –

They’re Everything

TGG Accounting | San Diego | Denver | Irvine | Las Vegas

Guiding Success.

Presented to

California Forum 2018

Matt Garrett

Entrepreneur Public Speaker

Founder of TGG Accounting

TGG Accounting | www.tgg-accounting.com

Job Descriptions

The Chief Financial Officer position is accountable for understanding the client’s goals and helping the client reach them. The CFO is also responsible for the client’s administrative, financial, and risk management operations. They develop financial and operational strategies and rely on metrics to maintain or improve business performance.

• Strategic consulting

• Bank negotiations

• Lease negotiations

• Exit planning

• Annual budget preparation

• Lawsuit/dispute resolution

• Tax planning presentation

• Annual budget preparation

The Controller position is accountable for the accounting operations of clients, to include the production of accurate financial statements with insightful commentary, and a comprehensive set of controls and budgets designed to mitigate risk.

• Benchmarking and ratio analysis

• Cash flow forecasting

• Escalated collection/dispute issues

• Approval of journal entries

• Chart of Accounts initial setup/clean up

• Approve monthly close out

• Coordinate with advisors

The Accounting Manager is responsible for all financial accounting and transaction processing. They are ambassadors for proper financial accounting standards. They play a key role in teaching and mentoring staff (both internal and external) on the TGG Way™ internal controls, systems and processes.

• Bank & credit card reconciliation review

• Invoicing/vendor/payroll set-up & review

• Reconcile fixed assets, inventory & payroll liability

• Review leases/contracts/insurance

• Collections disputes

• Creation of journal entries

• Sales tax return filing

• Build financial package/notes

• Benefits administration

The Staff Associate is responsible for the day-to-day transactional accounting. A Staff Associate builds the financial accounting foundation for the Accounting Manager to produce complete and accurate financial statements.

• A/P and A/R (includes collections)

• Deposits- posting & making

• Enter/reconcile credit card transactions

• Run payroll

• Send out 1099s

• Maintain customer & vendor lists • Physical inventory count

©The TGG Way™ www.tgg-accounting.com

MY KPIs What do you want to track in your business?

SERVICE PRODUCT MANUFACTURING

Average close rate

Average transaction value

Backlog

COGS

Conversion rate

CPI

Customer diversification

Customer retention %

Customer satisfaction

Customer service issues

Employee reviews- Glassdoor

Employee utilization

Industry diversification

On-time delivery

Profit per head

Profit per square foot

SGA per head

Transit times

Utilization per unit

# of accounts sold

Commodity pricing

Currency exchange

Existing franchises / customers year over year

Expenses of each salesperson

Freight as % of revenue

Fuel as % of revenue

Gain / fade

GP

Gross profit by product type / aged inventory

How long it takes to open once its sold

Labor: performance, straight time, overtime

Market share

New customers

Repair / maintenance / returns

Returns

Revenue

Routing efficiencies

Bonus point / tier system

Budget to actual

Cash on hand vs. net income

Changed from pounds of copper to dollars

COGS

Contribution margin

Direct labor vs. sales

DOA issues

EBITDA

How many orders are booked month

over month, year over year

How many times are salespeople

making customer visits

How much time it takes to build

something

Inventory utilization

KPI’s on quotes

Material to sales

New engineering effectiveness

New leads

On-time deliveries

Pieces processed per hour

PPM

Presentee-ism: % of labor force at job

at day

Quality

Safety

Safety net

Sales pipeline analysis

Scrap % of sales

Scrap dollar

Variable cost analysis

Warehouse utilization

Warranty

What’s out to be shipped

Reports Included: PageBusiness Overview & Executive Summary 2

Triple Bottom Line 3

Key Performance Indicators 4

Balance Sheet 5

Income Statement 6

Cash Flow Statement 7

Income Statement - Budget vs Actual 8

Notes to the Financial Statement 9-10

Prepared By:CFO: Sam SmithController: Susan SteinAccounting Manager: Steven SlyStaff Associate: Sally Shield

Financial Statements and AnalysisPeriod Ending March 31, 2017

XYZ Consulting, Inc.

Unaudited: For Internal Management Use Only 1 of 10

XYZ Consulting, Inc.Business Overview & Executive SummaryPeriod Ending March 31, 2017

Overall revenue continues to increase in the first quarter of 2017. Total revenue for this period is $1.7 million, which exceeds prior periods and budget as

follows:

• Revenue increased from $1.5 million in the last quarter of 2016, an increase of 14%.

• Year over year increase in revenue is 42% compared to Q1, 2016

• First quarter 2017 revenue exceeded budget by 10%

The increase in revenue compared to last quarter is in direct correlation to the increase in headcount during these periods. Although the revenue trend is

positive, actual billable hours are lower than expected in the first quarter of 2017 by about 5%. This is primarily due to on-boarding of several new employees

and total billable hours are expected to increase in future months.

Sales quotas were met during the quarter, but this will be tempered in future months by the higher than expected client attrition during the first quarter.

Along with the increase in revenues, there are also positive trends in Gross Profit Margin. The average gross profit percentages in the first quarter of 43% are

in-line with the average for 2016, however, in February and March margins were 46% in both months. Cost of sales incorporates the new incentive plans for

all fulfillment staff. As a result of the new plans and turnover in personnel, total incentive compensation accrued for the first quarter was $43k, a decrease of

$87k from the prior quarter, contributing to the increase in gross margin.

Operating expenses as a percentage of revenue totaled 25%, which is lower than 2016’s average of 31%. Certain fluctuations and explanations in operating

expenses in March are as follows:

• Decrease in marketing expense in March is due to an over-accrual of performance bonuses in January and February.

• HR increase in March is due to new unbudgeted VP of Operations position

• Recruiting in March reflects a normalized expense

Business Overview

XYZ Consulting, Inc. is a professional services firm that works to provide financial consulting to businesses.

Executive Summary

XYZ Consulting, Inc. is an S-Corporation registered with the State of California. It operates on a calendar fiscal year and the ownership structure is made of the

following: 75% by Jim Dean, 20% by John Smith, and 5% by Jeff Doe. Revenue is recognized based on billable hours incurred "Time and Material" (T&M) or a

set fixed price "Fixed Fee". XYZ Consulting, Inc. files taxes on an accrual basis.

Operating Results for Quarter End


XYZ Consulting, Inc.Triple Bottom Line

Period Ending March 31, 2017

$313K

124%

($23K)

(8%)

($262K)

(92%)

YoY %

Change

"Triple Bottom Line" refers to three measures of the financial health of a business: 1) Net income from Operations (a business's ability to operate profitably); 2) Net

Equity (a measure of financial safety in the business); 3) Net Cash from Operations (the cash impact of the operations of the business).

YoY $

Change

YoY %

Change

YoY %

Change

YoY $

Change

YoY $

Change

Net Income from Operations

Operating income is showing a positive trend due to the growth of revenue and increased margins over the last two quarters.

Net Equity

The drop in net equity in March is due to a tax distribution totaling $54k.

Net Cash from Operations

The trailing twelve month net income increased, but in Q1, 2017 cash fluctuated more than anticipated due to slower collections on high receivable growth, partnered

with the cost to onboard new employees. This is expected to stabilize and overall increase as new employees begin to become fully transitioned and increase their billable

hours.

$285K $243K $256K$290K

$330K$385K

$255K$304K

$347K

$176K

($20K)

$81K

$23K

($100K)

$K

$100K

$200K

$300K

$400K

$500K

Mar 16 Apr 16 May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17

Net Cash from OperationsShown on a Last Twelve Months (LTM) Basis

$309K$327K $321K

$292K$309K

$332K

$243K $259K$277K

$241K

$262K

$338K

$286K

$K

$50K

$100K

$150K

$200K

$250K

$300K

$350K

$400K


Net Equity

$254K $281K$250K $247K

$216K $206K $223K$190K

$226K

$343K $357K

$433K

$567K

$K

$100K

$200K

$300K

$400K

$500K

$600K


Net Income from OperationsShown on a Last Twelve Months (LTM) Basis


XYZ Consulting, Inc.Key Performance Indicators


$89.33

$83.87

$87.55

$85.12 $85.72$86.92

$83.45$82.08

$89.75$90.67

$92.79$90.41

$92.73

$70

$80

$90

$100


Average Bill Rate

$18.4K

$20.4K

$18.2K $18.9K

$20.8K$19.7K

$22.5K

$24.6K $25.2K$26.1K

$25.K

$28.4K$27.3K

$K

$5K

$10K

$15K

$20K

$25K

$30K


Revenue per Billable Day

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$K

$50K

$100K

$150K

$200K

$250K

$300K

$350K

$400K

$450K

$500K

$550K

$600K

$650K

$700K


Fixed Fee Contribution to Gross Consulting Revenue

Fixed Fee Hourly Consulting % FF of Total


XYZ Consulting, Inc.Balance Sheet

As of March 31, 2017

1/31/2017 2/28/2017 3/31/2017 Notes

Assets

Current Assets

Cash 188,028$ 284,041$ 241,692$ 1

Accounts Receivable, Net 493,394 492,652 514,470 2

COBRA Receivable 1,530 2,556 2,548 3

Prepaid Expense 139,381 120,519 107,196 4

Total Current Assets 822,333 899,769 865,907

Non-Current Assets

Long Term Receivable 50,502 48,634 48,634 5

Security Deposit Asset 16,694 16,694 16,694

Total Non-Current Assets 67,196 65,328 65,328

Net Fixed Assets 5,273 5,061 4,850 6

Total Assets 894,802$ 970,158$ 936,084$

Liabilities & Shareholders' Equity

Current Liabilities

Accounts Payable 81,451 113,534 149,571

Accrued Expenses 4,403 5,436 4,939 7

Accrued Rent - ST 18,731 19,203 19,675 8

Customer Deposits 214,480 221,615 225,354

Deferred Revenue 3,325 2,750 2,650 9

Loan Payable to ABC - ST 53,959 - - 10

Bank - Line of Credit - 100,000 97,391

Payroll Liabilities 175,469 142,453 125,119 11

Total Current Liabilities 551,818 604,992 624,700

Long-Term Liabilities

Loan Payable ABC to - LT 51,379 - - 10

Accrued Rent - LT 29,305 27,351 25,397 8

Total Long-Term Debt 527,917 494,170 475,910

Total Liabilities 632,502 632,343 650,096

Shareholders' Equity

Current Year Net Distribution - - (54,454) 12

Retained Earnings 241,434 241,434 241,434

Net Income 20,866 96,381 99,009

Net Shareholders' Equity 262,300 337,815 285,988

Total Liabilities & Shareholders' Equity 894,802$ 970,158$ 936,084$

Q117


XYZ Consulting, Inc.Income Statement

Period ending March 31, 2017

YTD

Jan Feb Mar 2017 Notes

Revenue

Consulting 549,782 567,091 628,991 1,745,863$ 13

Cross Selling Revenue 5,125 6,150 5,100 16,375 14

Discounts (6,197) 2,350 (16,915) (20,762) 15

Total Revenue 548,709 575,591 617,176 1,741,476

Cost of Goods Sold

Fulfillment Costs

Direct Wages - Hourly 5,240 6,178 9,379 20,797

Direct Wages 238,920 237,233 236,667 712,820

Outside Consultant 24,074 24,862 30,362 79,298

Burden Allocation 38,284 39,226 40,919 118,429 16

Cross Selling Expense 3,150 3,066 2,688 8,904

Total Fulfillment Costs 309,669 310,565 320,015 940,249 GP % Before Performance Bonuses 44% 46% 48% 46%

Performance Bonuses 35,747 (1,592) 12,070 46,225

Total Cost of Goods Sold 345,416 308,973 332,085 986,474 17

Gross Profit (Loss) 203,293 266,617 285,091 755,002

Gross Profit Margin 37% 46% 46% 43%

Sales Commissions 23,472 25,814 28,857 78,143

Contribution Margin 179,821 240,804 256,234 676,859

% of Revenue 33% 42% 42% 39%

Sales, Marketing, & Recruiting Expense

Marketing 13,920 17,508 4,715 36,144

Sales 24,994 27,835 27,835 80,665

Recruiting 5,097 7,138 8,635 20,869 18

Total Sales, Marketing, & Recruiting Expense 44,011 52,481 41,185 137,677

% of Revenue 8% 9% 7% 8%

General & Admin Expense

Accounting/Legal 4,212 8,855 9,095 22,162 19

HR 83,895 64,293 72,061 220,249 20

IT 16,297 15,587 14,848 46,732

Facilities/Admin/Travel 32,546 34,052 36,351 102,949

Training 1,691 1,691 1,691 5,074

Quality Assurance 5,302 5,302 5,302 15,906

Burden Allocation to COGS (38,284) (39,226) (40,919) (118,429) 16

Depreciation Expense 212 212 212 635

Total General & Admin Expense 105,872 90,766 98,641 295,279

% of Revenue 19% 16% 16% 17%

Net Operating Income 29,938 97,557 116,408 243,903

% of Revenue 5% 17% 19% 14%

Other Income 3,251 2,245 4,068 9,564

Other Expenses 12,323 24,288 117,848 154,459

Other Income/(Expense) (9,072) (22,043) (113,780) (144,894) 21

Net Income (Loss) 20,866$ 75,515$ 2,628$ 99,009$

% of Revenue 4% 13% 0% 6%

Q117


XYZ Consulting, Inc.Cash Flow Statement

Period ending March 31, 2017

YTD

Jan Feb Mar 2017

Cash at Beginning of Period 390,204$ 188,028$ 284,041$ 390,204$

Operating Activities

Net Income 20,866 75,515 2,628 99,009

Adjust for Non Cash Operating Activities:

Add: Changes in Depreciation 212 212 212 635

(Increase)/Decrease in Assets

Accounts Receivable, Net (138,616) 742 (21,818) (159,692)

COBRA Receivable 8 (1,026) 8 (1,010)

Prepaid Expense (49,332) 18,862 13,323 (17,147)

Increase/(Decrease) in Liabilities

Accounts Payable (20,805) 32,083 36,038 47,315

Accrued Expenses (436) 1,033 (497) 100

Accrued Rent - ST 472 472 472 1,416

Accrued Rent - LT Portion (1,954) (1,954) (1,954) (5,863)

Customer Deposits 15,000 7,135 3,738 25,873

Deferred Revenue 675 (575) (100) -

Payroll Liabilities (27,595) (33,015) (17,334) (77,945)

Net Cash Provided By Operations (Used in) (201,507) 99,483 14,715 (87,309)

Investing Activities- - - -

Net Cash Used in Investing Activities - - - -

Financing Activities

Bank - Line of Credit - 100,000 (2,609) 97,391

Equity in Investments - - - -

Net Distributions - - (54,454) (54,454)

Loan Payable to ABC - LT (3,670) (51,379) - (55,049)

Loan Payable to ABC - ST (53,959) - (53,959)

Long Term Receivable - Other 3,000 1,868 - 4,868

Net Cash Provided in Financing Activities (670) (3,470) (57,063) (61,203)

Net Increase in Cash (Decrease) (202,177) 96,013 (42,348) (148,512)

Cash at End of Period 188,028$ 284,040$ 241,693$ 241,693$

Q117


XYZ Consulting, Inc.Income Statement - Budget vs Actual


Mar 2017 Mar 2017 Var Mar 2016 Var 2017 YTD 2017 YTD Var 2016 YTD Var

Actual Budget F / (U) % Actual F / (U) % Actual Budget F / (U) % Actual F / (U) %

Revenue

Consulting 628,991 565,816 11% 423,461 49% 1,745,863 1,583,070 10% 1,263,794 38%

Cross Selling Revenue 5,100 4,725 8% 30 16900% 16,375 13,950 17% 6,826 140%

Discounts (16,915) (7,073) (139%) (18,758) 10% (20,762) (19,788) (5%) (43,512) 52%

Total Revenue 617,176 563,469 10% 404,734 52% 1,741,476 1,577,232 10% 1,227,108 42%

Cost of Goods Sold

Fulfillment Costs

Direct Wages - Hourly 9,379 7,259 (29%) 3,598 (161%) 20,797 19,294 (8%) 8,133 (156%)

Direct Wages 236,667 234,377 (1%) 158,136 (50%) 712,820 663,565 (7%) 473,281 (51%)

Outside Consultant 30,362 - 0% 18,068 (68%) 79,298 - 0% 43,352 (83%)

Burden Allocation 40,919 36,245 (13%) 18,542 (121%) 118,429 102,429 (16%) 52,886 (124%)

Cross Selling Expense 2,688 2,646 (2%) - 0% 8,904 7,812 (14%) - 0%

Total Fulfillment Costs 320,015 280,527 (14%) 198,344 (61%) 940,249 793,100 (19%) 577,653 (63%)

GP % Before Performance Bonuses 48% 50% 51% 46% 50% 53%

Big Bonus - 5,578 100% 8,250 100% - 25,751 100% 19,500 100%

Performance Bonuses 12,070 5,357 (125%) 25,468 53% 46,225 13,839 (234%) 73,822 37%

Total Cost of Goods Sold 332,085 291,462 (14%) 232,062 (43%) 986,474 832,689 (18%) 670,975 (47%)

Gross Profit (Loss) 285,091 272,006 5% 172,672 65% 755,002 744,543 1% 556,133 36%

% of Revenue 46% 48% 43% 43% 47% 45%

Sales Commissions 28,857 33,808 15% 23,287 (24%) 78,143 94,634 17% 57,954 (35%)

Other Bonus Payments - - 0% - 0% - - 0% - 0%

Contribution Margin 256,234 238,198 8% 149,385 72% 676,859 649,909 4% 498,179 36%

% of Revenue 42% 42% 37% 42% 142% 117%

Sales, Marketing, & Recruiting Expense

Marketing 4,715 23,354 80% 18,138 74% 36,144 69,213 48% 41,550 13%

Sales 27,835 27,813 (0%) 13,860 (101%) 80,665 83,438 3% 41,874 (93%)

Recruiting 8,635 13,500 36% 13,840 38% 20,869 40,500 48% 22,113 6%

Total Sales, Marketing, & Recruiting Expense 41,185 64,667 36% 45,837 10% 137,677 193,150 29% 105,537 (30%)

% of Revenue 7% 48% 11% 8% 12% 9%

General & Admin Expense

Accounting/Legal 9,095 10,210 11% 10,055 10% 22,162 30,064 26% 31,541 30%

HR 72,061 35,286 (104%) 34,164 (111%) 220,249 104,130 (112%) 122,749 (79%)

IT 14,848 15,413 4% 18,243 19% 46,732 45,038 (4%) 46,656 (0%)

Facilities/Admin/Travel 36,351 38,643 6% 39,756 9% 102,949 112,618 9% 112,294 8%

Training 1,691 1,219 (39%) 13,796 88% 5,074 3,656 (39%) 43,044 88%

Quality Assurance 5,302 5,302 0% 5,281 (0%) 15,906 15,906 0% 16,053 1%

Depreciation Expense 212 212 0% 306 31% 635 635 0% 919 31%

Burden Allocation to COGS (40,919) - 0% - 0% (118,429) - 0% - 0%

Total General & Admin Expense 98,641 106,284 (7%) 121,602 19% 295,279 312,047 (5%) 373,256 21%

% of Revenue 16% 19% 30% 17% 20% 117%

Net Operating Income (Loss) 116,408 67,247 73% (18,055) 745% 243,903 144,712 69% 19,386 1158%

% of Revenue 19% 12% -4% 14% 9% 2%

Other Income 4,068 1,000 307% 1,918 112% 9,564 3,000 219% 25,617 (63%)

Other Expenses 117,848 18,575 534% 7,898 (1392%) 154,459 44,888 244% 52,610 (194%)

Other Income/(Expense) (113,780) (17,575) (547%) (5,980) (1803%) (144,894) (41,888) (246%) (26,994) (437%)

Net Income (Loss) 2,628$ 49,673$ (95%) (24,034)$ 100% 99,009$ 102,824$ (4%) (7,607)$ 1402%

% of Revenue 0% 9% -6% 14% 9% 117%


XYZ Consulting, Inc.Notes to Financial Statements


Note 1 Cash

Balance

Bank Account #1 $ 197,103

Bank Account #2 41,014

Bank Account #3 500

Deposits in Transit 3,075

$ 241,692

Note 2 Accounts Receivable

Balance

Total Accounts Receivable $ 685,807

Client #1 (105,095)

Client #2 (10,331)

Client #3 (55,911)

$ 514,470

Note 3 COBRA Receivable

Note 4 Prepaid Expense

Balance

Prepaid Expense $ 103,664

Prepaid Insurance 3,531

$ 107,196

Note 5 Long Term Receivable

Balance

Client #1 $ 53,502

Client #3 30,132

Owner Withholdings (35,000)

$ 48,634

Note 6 Fixed Assets

Note 7 Accrued Expenses

Note 8 Accrued Rent - Short & Long Term

Category Start Date Monthly Expense ST Portion LT Portion

Office Lease 12/01/12 13,834$ 19,675$ 25,397$

19,675 25,397

Note 9 Deferred Revenue

Note 10 Loan Payable

Note 11 Payroll Liabilities

Accrued Expenses represent expenses that have been incurred, but the bill has not yet been received to be paid. Typical contributors to this account are

merchant service fees, California S-Corp Tax, and Workers' Compensation adjustments.

Rent Expense is recorded on a straight-line basis at $14,253 monthly through the lease term (December 2012 through March 2018). Accrued Rent is split

to recognize the short-term and long-term portions. This allocation will be adjusted each month per the accrued rent schedule. See details below.

64 Month

Deferred Revenue includes client charges for Cloud Service Fees for the upcoming month, and client prepayments of invoices in future months.

Total

Term

Prepaid Expense includes prepaid expenses and prepaid insurance. Prepaid Expense includes money paid for products or services before the period of

service. Prepaid Insurance represents: Life, Errors & Omission, Dishonesty, General Liability and Worker's Compensation insurance paid in advance and

expensed over the coverage period. See below for a summary.

Cash is comprised of one checking account (main operating account) and one money market account used as a holding account for the annual company

retreat. A second account was previously included, but was transferred to X in February.

Accounts Receivable includes payments not yet received from clients for services provided. An Allowance for Bad Debt account is used to estimate

uncollectible client payments. This account is set up as a contra Accounts Receivable (AR) account and is netted with AR. See below for balance by

customer of Allowance for Bad Debt.

COBRA Receivable consists of premiums paid on behalf of past employees enrolled in COBRA awaiting reimbursement. These advances on premiums are

reimbursed by Total Administrative Services Corporation (TASC) approximately one month following payment of premiums.

In February, XYZ Consulting, Inc. paid down the two loans from ABC. Payment of this long-term debt was accomplished through a short-term debt facility

with Bank.

Payroll Liabilities include liabilities owed to employees for commissions, accrued wages for 50/50, hourly and full-time employees, Gross Profit Bonus,

Officer Net Profit Bonus, CPA Bonus, and 401(k) funds to be deposited into employees' 401(k) accounts through American Funds.

Account

Total

Total

Fixed Assets are comprised of capitalized assets, which are depreciated on a monthly basis. XYZ Consulting's minimum capitalization threshold is $1,000,

although certain assets may be exceptions based on the nature of the item. All assets are depreciated over the straight-line method, which is calculated

by dividing the asset purchase cost by its estimated useful life.

Long Term Receivable consists of 75% of the 2014 bad debt reserve for Client #1 and Client #3. The balance will decrease as payment is received.

Account

Total Cash

Customer

Net Accounts Receivable

Customer


XYZ Consulting, Inc.Notes to Financial Statements


Note 12 Current Year Net Distributions

Date Shareholders Contributions/Distributions Balance

3/31/2017 2016 Q1 Distribution - Jim Dean $ (40,841)

3/31/2017 2016 Q1 Distribution - John Smith (10,891)

3/31/2017 2016 Q1 Distribution - Jeff Doe (2,723)

Total $ (54,454)

Note 13 Consulting

Note 14 Cross Selling Revenue

Note 15 Discounts

Note 16 Burden Allocation

Note 17 Cost of Goods Sold

Note 18 Recruiting

Note 19 Accounting/Legal

Note 20 HR

Note 21 Other Income/(Expenses)

Description Amount

Misc Other Income 1099 Supplies to Clients 764

Late Fees Assessed Late fees assessed on clients 2,933

Interest Income Interest Income 371

Net Profit Bonuses Officer NP Bonuses (81,543)

Taxes CA S-Corp, Property Tax (2,691)

Interest Expense Bank Term Loan Interest Expense (354)

Chairman Discretionary Expenses Expenses incurred by Employee (5,000)

Misc Expense 1099 Supplies Cost (999)

Bad Debt Expense Client #1, Client #2, Client #3 Write Off (27,261)

Total (113,780)$

Amount

Officer Net Profit Bonus - Jim Dean $ 61,134

Officer Net Profit Bonus - John Smith 17,493

Officer Net Profit Bonus - Jeff Doe 2,915

Total Officer Net Profit Bonuses 81,543$

Current Year Distributions include distributions made to shareholders for estimated tax payments. Distributions are scheduled to coincide with estimated

tax payment due dates. Distributions are scheduled to commence in April 2017.

A "burden" allocation is made from operating expenses to properly classify the fully loaded cost of employment for fulfillment team employees. XYZ

Consulting, Inc. estimates burden to be 15% of each employees' wages. Burden considers an estimation for employer taxes, employee benefits, and

incremental support service costs.

Recruiting primarily consists of a salary allocation for overhead personnel with a budget for recruiting related expenses. A planned increase in salary

allocations occurred in Q116 with the on-boarding of recruiter to XYZ Consulting, Inc.

Other Income/(Expenses) are comprised of income and expenses not directly related to the general operation of the business. See below for a detailed

breakdown:

Other Income/(Expenses)

Net Profit Bonuses are awarded to the offices of CEO, COO, and President. John Smith and Jeff Doe have received bonuses monthly, rated against each

month's Net Operating Income. Jim Dean received a bonus on QTD Net Operating Income performance in March.

California S-Corp taxes increased in March due to an under-accrual caused by a miscalculation of the 481(a) adjustment ending in 2016.

Discounts is comprised of consulting credits granted on client billings. In the current period, credits to clients significantly exceeded plan. Time related to

Client #2 was the majority of the period's balance.

Consulting includes gross revenue, before discounts, earned by performing consulting and accounting services for clients.

Cost of Goods Sold includes Direct Wages and Performance Bonus. Individual performance compensation earned by the fulfillment team is calculated by

staff level. Bonuses are accrued each month based on the employee's quarter to date performance. Accrued bonuses over the quarter are paid in the

following quarter over six payroll periods. Accruals in January exceeded QTD performance in February, resulting in a negative expense in February. Cross

Selling Expense includes Cloud cost related to cross selling revenue associated with the seats used by clients.

Officers

Cross Selling Revenue includes revenue generated from non-consulting related services. As of this publication, this account is comprised wholly of Cloud

remote desktop seats sold to clients.

HR includes HR wages, employee benefits, 401(k) match, employer taxes, payroll service fees, and other HR expenses. February saw a significant decrease

in expenses in this category, primarily from a return to normalcy for the year. January experienced increased expense caused from Q4 tax adjustments

from California and reset employee tax threshholds for CA Employee Training Tax, CA SUI, and Social Security.

Accounting/Legal consists of accounting wages, credit card processing, general consultants, bank fees, and legal expenses. Credit Card Processing Fees

include monthly fees charged directly from merchant processors. The fees are calculated as a variable cost based on the number and type of transactions

processed. February saw an increase in allocated wages with the on-boarding of an internal staff.


TGG Accounting | www.mattgarrettonline.com | www.tgg-accounting.com

Matt Garrett

Matt is an Entrepreneur who found out about the power

of proper accounting and excellent financial management

through the sale of his previous two businesses; one

unsuccessful and one extremely successful. He aims to

share those lessons with people to empower them to

achieve financial freedom and peace of mind.

In 2006, Matt founded TGG, an outsourced accounting

and business advisory firm. He started the firm to deliver

financial information to small and mid-sized businesses to

dramatically reduce the business failure rate.

Along with being the founder and CEO of TGG, Matt is a

regular speaker across the country educating business

owners on the need for sound financial practices. He

received his B.S. in Human and Organizational

Development from Vanderbilt University.

[email protected]


Documents

Matt Garrett Matt is an Entrepreneur who found out about ... · • Approve monthly close outEscalated collection/dispute issues • • Approval of journal entries • Chart of Accounts