SIGHTING BUSINESS SUCCESS: Beyond the Basicsohiosurveyor.org/wp-content/uploads/2016/10/Business... · 2019-04-09 · 1 SIGHTING BUSINESS SUCCESS: Beyond the Basics PLSO Fall Columbus,

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SIGHTING BUSINESS SUCCESS:Beyond the Basics

PLSO FallColumbus, OH

October 12, 2017

Men are born to succeed,not fail.

-Henry David Thoreau

Thank You For Everything!Please Respect People Around YouLearn Something and Have FunAsk Questions when RelevantLearn More in the Future…”Continuing Ed”

Announcements• Schedule – Put a break where it fits• Other?

Housekeeping/Welcome

Kimberly A. Buchheit, PSMFAQ-How do you pronounce “Boo-Kite”?FAQ-What is PSM?FAQ-How did you get into Surveying?

Brief BioBA Geography/Cartography specializationSUNY Buffalo (UB), 1982Surveying in FL Since 1983Florida Land Surveyor, Licensed 1990100% Woman Owned Business Since 1991

Task Oriented Projects and Consulting Surveyor-On Project by Project Basis

Continuing Education, Florida Provider CE #67-Customized Programs

Contact Me Anytime-Email or Text

Self Introduction-Kim B.

At Corporate OfficeApopka/Sorrento, FL

Personal Quote:

“If it were simple, everyone would be doing it…”

(c) 2017 Kimberly A. Buchheit, All Rights Reserved

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NOTES:

SIGHTING BUSINESS SUCCESS:Beyond the Basics

By:Kimberly A. Buchheit, PSMPO Box 2016Apopka, FL 32704email: [email protected]: cell/text 321-689-1057

© 2017 All Rights ReservedPermission Required to Reproduce in any Form

Material is intended for the use of workshopAttendees.

Neither the Instructor of this Course, nor the Course materials provide or imply Tax Preparation advice of any kind, whatsoever.Consult IRS Rules, a CPA and/or other qualified Experts for Tax Preparation advice, Investment Counseling or any other personal or business financial matters.

Artwork:On the Cover and In Conclusion-Publix Press Printing AD, From Surveyors in AdvertisingVirtual Museum of Surveyinghttp://surveyhistory.org/images/adpublix.JPG

Clip Art Sources: Microsoft Office

Acknowledgements:

Tuck Executive Education at DartmouthProgram Faculty and Staffhttp://www.tuck.dartmouth.edu/exec/

Resources:Greenhalgh, Leonard. Managing Strategic RelationshipsThe Key to Business Success. New York: The Free Press, 2001.

INTRODUCTION

GROUP AND PERSONAL GOALS General Goals for the Future• Do Your Best• Keep Learning and Applying Lessons• Communicate Reasons for Actions• Strive For Continuous Improvement

Goals for Today• Discover A Few Gems (at least one)• Build A Framework for Success• No Need to “Reinvent the Wheel”• Become Your Own Expert• Start and Maintain “TO DO” List • Make Physical and Mental Notes

Drive thy business or itwill drive thee.-Benjamin Franklin

INTRODUCTION

WHO ARE MY CUSTOMERS TODAY ?Total Attendees/Breakdown

• Surveyors, Mappers, Photo, GIS• Level In Organization

• Owner/Partner/Officer (Equity in Business) • Manager (Position of Responsibility)• Worker/Employee (W-2 Income)• Independent (1099)• For All: Technical or Business Primary ?

• Size/Type of Organization• Small/Large, Private/Public/Gov’t

WHAT ARE MY CUSTOMERS THINKING?• Why Do You Want to Know?• How Do I Get to the Next Level?• Is This Even Worth it Anymore?• Can I Survive?• Questioning Effort vs. Reward• Dreaming of being your own Boss• Retirement, Reinvention, Career Change• I Just Want the Course Credits

NOTES: WHAT WILL MY CUSTOMERS VALUE?

Address Evaluations Comments

Make Adjustments

Manage Time Better

Simplify Financials

Use More Practical Examples

Tailor Material for Today


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INTRODUCTION

YOUR LIST

Vision ItemsAction ItemsFollow Up• Decide• Prioritize• Implement• Measure • Learn and Adjust • Repeat, Repeat, Repeat

Constant Improvement

Date # or P Item Who Needs to be Involved Complete

12345678910

TO DO LIST

BUSINESS CLIMATE TODAY

WHERE ARE WE NOW?• Economic Conditions and Indicators• Industry Conditions• Business Conditions (micro)• Access to Capital• Canaries• Shrinking vs. Growing

CHALLENGES

SURVIVAL/FAILURE RATESSmall Business Statistics for

New Employer Firms:78.5% Survive 1 Year

1 out of 2 (50%) Survive 5 Years+ 1 out of 3 (33%) Survive 10 Years

https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2016_WEB.pdf

(SBA June 2016)

Don’t let this be your legacy:“He/she was a great Surveyor, but a terrible businessperson.”

Master this basic business principle:Sell for More Than

The Cost to Produce

Strive for Inequality$$$$$’s Incoming > $$$’s Outgoing

Annual income twenty pounds, annual expenditure nineteen six,

result happiness.

Annual income twenty pounds, annual expenditure twenty pound ought and six,

result misery.

-Charles DickensEnglish novelist (1812 - 1870)

David Copperfield, 1849


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CHALLENGES

WEAKNESSES AND FAILURES• Bad Decisions, Wrong Reasons• Lack of Strategic Direction • Organizational Structure Impedes Success• Inefficient Process• Failure to Empower Employees• Not Sustainable (Services too Narrow)• Failure to Adapt (Dinosaur Syndrome)• Poor Financial Management• Failure to Monitor Financial Indicators• Lack of Customer Orientation Surveyosaurus Rex

?????

CHALLENGES

SURVIVAL KIT• Manage Effectively• Build on Core Competency• Attract and Retain Customers • Attract and Retain Employees • Monitor & Control Financial Issues • Adapt to Changing Conditions

• Economic• Competitive• Technological• Regulatory

• Anticipate New Sources of Competition• Consider Expanding Lines of Service or Market Areas• Other

That some achieve great success, is proofto all that others can achieve it as well.

-Abraham Lincoln

WHO ARE COMPETITORS?

Generally, We DefineCompetitors Too Narrowly


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ADAPTING

Strategies for Survival• Measures and Analysis• Cost-Control• Up-Sizing, Down-Sizing, Right-Sizing• Diversification/Specialization• Retool• Sinking Fund• Other: _________________________

…Our time of standing pat…and putting off unpleasantdecisions, that time has surely passed.

President Barack ObamaInaugural Address, January 20, 2009

STRATEGY

TOUGH DECISION EXAMPLEPlanning Removes Doubt

• Eliminate Need for Emergency Action• Emergencies Allow Fewer Options

Develop Contingency Plan(s)For Flexibility

• Basic Condition Categories• Anticipate Triggers for Decisions• Identify Needs• Analyze Appropriate Factors• Prepare for Action• Act Decisively

The only difference between success and

failure is the ability to take action.

Before anything else, preparation is the key to

success.

Alexander Graham Bell

DECISION MATRIX EXAMPLECondition Example

TriggersNeeds Analysis

(Focus)ExampleActions

A) Growth Win a big job with an aggressive schedule, Competitor sells or closes

Resource Allocation: Labor and Assets, Pursue opportunities, Capture Markets

Hire, subcontract, obtain equipment or vehicles (purchase or lease), expand office space, establish strategic alliances, acquisition

B) Maintenance No major changes in market or workload, “Business as Usual”

Optimize Efficiencies, Reconsider Goals and Strategy, Consider Investment Options

Review Ops, Process and Procedures, Upgrade equipment, cross-train staff, promote professional development, Build and maintain relationships, target marketing, Create Safety Nets: Business and Personal

C) DeclinePhases 1, 2, 3

Workload projections falling, Major Client loss, Diminishing Leads, Key Personnel Change, Cash Reserves Decreasing

Control Expenses, Adjust Labor Cost, Manage Cash Flow, Assess Owner’s Risk, Reconsider Budget, Hedge Bets

Cut non-essential spending, Cut Labor Cost, Review Debt Service/Refinance, Deploy Business Safety Net, Review Disposal Options, Review Personal Safety Net Needs, Prepare for Next Move

D) Minimize Pre-determined Conditions are Met, No New Work on Horizon

Minimize Cash Consumption, Maintain Communications

Go into “Bare Bones” mode, Study Trends, Reinvent Image, Prepare for Next Move, Seek Professional Advice, Liquidate dispensable items

E) Shutdown Retirement, Succession Plan, Cash Depletion

Tie up Loose Ends,Package for Sale

Meet with CPA and Lawyer, Sell Business, Liquidate, Close doors, Career Change ?


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DECLINE PHASE ANALYSIS

Decline Scenario/Indicators

ResultingAnalysis

Actions

Phase 1 Decrease in Lead Volume, Most Projects in Final Stages, Pipeline Half Empty, AR Decreasing

Prepare to Go Either Way, Maintain Staff with less Productive Chores, Trim Fat, Stay Optimistic, Don’t Freeze, Risk Threshold Assessment

Sharpen Shovels, Manage Records Archives, Aggressively Seek Business, Cut Hours

Phase 2 Projections Fall Steeply, Collections Failing, Contract Starts are Delayed Indefinitely

Shrink, Not Looking Good, Tighten Belt Another Notch

Continue to Aggressively Seek Business, Minimize Hours, Cut Staff, Eliminate Positions

Phase 3 Cash Reserves Approach Safety Net, LOC Unavailable

Minimization is Imminent Address Critical Staff and Equipment Requirements, Batten Down Hatches

Vehicle (Asset) Disposal Analysis –Simplified ExampleYou wish to cut costs by disposing of a vehicle. Which do you choose?

Monthly Monthly Loan SaleIns Pmt Balance Price

Older Vehicle 125.00$ -$ -$ 2,500.00$ Newer Vehicle 125.00$ 500.00$ 15,000.00$ 12,500.00$

Assumptions:The older vehicle is paid in full, and has minimal carrying cost.The newer vehicle would require some additional cash to fill the payoff gap.

Cash Flow Analysis (Carrying Cost):Older Vehicle 1,500.00$ per yearNewer Vehicle 7,500.00$ per year

In Year 1, Savings = Cash In + (Cash Out) + Annual ExpenseThereafter, = Savings = Annual Expense

Year 1 Year 2 Year 3 Total SavingsOlder Vehicle 4,000.00$ 1,500.00$ 1,500.00$ 7,000.00$ Newer Vehicle 5,000.00$ 7,500.00$ 7,500.00$ 20,000.00$

In this example…Despite the payoff gap, the newer vehicle provides greater long-term savings because of its higher ongoing carrying cost.

Other Considerations:** Ease of Replacement ** Availability of payoff funds** Payoff vs Asset Disposal ** Tax Consequences (Depreciation)

Financial Statements Demystified• The Essential 2 or 3

1) Balance Sheet2) Income Statement (P & L)3) Cash FlowThe 4th Statement is Equity Statement (GAAP Standards)

Users/Uses• External

• Financing, Auditors, Regulatory Authorities• Investors, Potential Purchasers• Creditworthiness, Rate Determinations, Taxing, Negotiating Deals

(Note: Landing Institutions May Also Require Personal Financial Statement, Tax Returns)

• Internal• Owners, Managers, Stockholders, Employees• To Provide to External Users for a Purpose• For Management Purposes

• To Monitor and Measure Performance • For Critical Self-Analysis and Adjustments • For Detailed Statistics (Hourly, Daily, Monthly, Quarterly, Annually)• For Decision Making

FINANCIAL MANAGEMENT


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FINANCIAL MANAGEMENTBalance Sheet• Not Possible with a “Shoebox”, Requires Double Entry Accounting• Useful for Evaluating Ability to Meet Long Term Obligations• Status at a Given Moment • Current Condition or “Snap Shot”• Cash vs. Accrual

Terms • ASSETS

• What You Have (If you have it, It came from somewhere)• Current: Cash, Receivables (collectable cash) • Fixed Assets (PPE-Property, Plant, Equipment)• Capital Leases may Count

• Things you need to get the work done• LIABILITIES

• What you Owe• Current or Short Term (owed within next 12 months)• Non-Current or Long Term

• EQUITY• Residual (after Assets and Obligations)• Stock, Paid In Capital, Retained Earnings• Owner’s or Shareholder’s Equity

Assets = Liabilities + Equity (Must Balance)

BALANCE SHEET“Raw Data”

ASSETSCurrent Assets

Bank Accounts1015 · OPERATING ACCOUNT 26,578.611016 · MONEY MARKET ACCOUNT 171,659.34

Total Bank Accounts 198,237.95

Accounts Receivable1100 · ACCOUNTS RECEIVABLE 484,855.93

Total Accounts Receivable 484,855.93

Other Current Assets1060 · PETTY CASH 60.001460 · ADVANCES TO EMPLOYEES 1,072.74

Total Other Current Assets 1,132.74

Total Current Assets 684,226.62

Fixed Assets1570 · EQUIPMENT 275,862.771580 · FURNITURE AND FIXTURES 50,746.191590 · CAPITALIZED SOFTWARE 28,176.171650 · VEHICLES 226,697.14

Total Fixed Assets 581,482.27

Other Assets1681 · ACCUMULATED DEPRECIATION -558,502.361810 · OTHER 3,509.16

Total Other Assets -554,993.20

TOTAL ASSETS 710,715.69LIABILITIES & EQUITY

LIABILITIES & EQUITYLiabilities

Current LiabilitiesAccounts Payable

2000 · ACCOUNTS PAYABLE 39,162.80Total Accounts Payable 39,162.80

Other Current Liabilities2080 · LEASE PAYABLE #1 -7,997.922082 · LEASE PAYABLE #2 4,757.032093 · NOTE PAYABLE #1 -5,437.592095 · NOTE PAYABLE #2 5,478.882097 · NOTE PAYABLE #3 -330.162098 · NOTE PAYABLE #4 5,450.042094 · NOTE PAYABLE #5 6,140.652100 · PAYROLL LIABILITIES 114.492200 · FED WITHHOLDING TAX PAYABLE 3,836.232210 · SOCIAL SECURITY TAX PAYABLE 1,542.422220 · MEDICARE PAYABLE 816.12

Total Other Current Liabilities 14,370.19

Total Current Liabilities 53,532.99

Long Term Liabilities2880 · LEASE PAYABLE #1 - L/T 10,838.162882 · LEASE PAYABLE #2 - L/T 3,926.012893 · NOTE PAYABLE #1 - L/T 12,156.122895 · NOTE PAYABLE #2 - L/T 23,609.502897 · NOTE PAYABLE #3 - L/T 22,583.732898 · NOTE PAYALBE #4 - L/T 5,821.122894 · NOTE PAYABLE #5 - L/T 23,190.66

Total Long Term Liabilities 102,125.30

Total Liabilities 155,658.29

Equity3900 · RETAINED EARNINGS 436,415.02Net Income 118,642.38

Total Equity 555,057.40

TOTAL LIABILITIES & EQUITY 710,715.69

As of12/31/Year

TOTAL LIABILITIES & EQUITY 710,715.69TOTAL ASSETS 710,715.69

= EQUAL BY DEFINITION =

As of12/31/Year


Income Statement (P & L)• What You Have Earned and Kept, The Movie• For a Given Period of Time (Monthly, Quarterly, Annually)• EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization

Terms• INCOME or REVENUE

• Inflows from Delivery of a Product or Rendering Service (Fees)• What You Earned (Invoiced or Received)

• Other Income• EXPENSE

• Outflows Incurred to Produce Revenues (Your Costs)• Labor (Direct and Indirect), Fringes, Insurance, Admin, Supplies, etc.

• DEPRECIATION and AMORTIZATION• Hold That Thought

Net Ordinary Income = Income - ExpensesNet Income = Net Ordinary Income - Interest - Taxes - Depreciation - Amortization


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INCOME STATEMENT (P & L)“Raw Data”

Ordinary Income/ExpenseINCOME

4000 · FEES 1,443,483.72Total Income 1,443,483.72

EXPENSE5310 · INDEPENDENT CONTRACTORS-DIRECT 86,755.765340 · POSTAGE & FREIGHT - DIRECT 41.636000 · SALARIES/WAGES - DIRECT 531,973.086005 · SALARIES/WAGES - INDIRECT 220,873.026020 · SUTA/FUTA TAXES 1,698.966110 · AUTO/TRUCK EXPENSE 31,421.596111 · AUTO/TRUCK REPAIRS & MAINTENANCE 9,479.356115 · AUTO/VEHICLE RENTAL 437.906120 · BANK SERVICE CHARGES 115.006140 · CONTRIBUTIONS 3,685.006145 · CONTRIBUTIONS-NON DEDUCTIBLE 200.006160 · DEPRECIATION EXPENSE 5,000.006165 · DEPRECIATION EXPENSE - SEC 179 84,408.716170 · AMORTIZATION 0.006180 · DUES/SUBSCRIPTIONS/MEETINGS 2,366.276185 · DUES/SUBS-NON DEDUCTIBLE 218.796200 · EQUIPMENT RENTAL/LEASE 6,940.266205 · PRINTING/PROCESSING 71.936230 · INSURANCE-EMPLOYEE GROUP HEALTH 33,417.326235 · INSURANCE-DENTAL 45.936240 · INSURANCE - GENERAL 13,251.766240.1 · AUTO/VEHICLE/INSURANCE 14,566.476240.2 · COMMERCIAL LIABILTY INSURANCE 13,361.176240.4 · WORKERS COMP INSURANCE 6,374.006250 · INSURANCE - OFFICER'S LIFE 277.246255 · INTERNET/WEBSITE 505.206260 · INVESTIGATIVE SERVICES (MVR's) 131.50

6270 · LEGAL & ACCOUNTING 4,869.206275 · LICENSES & PERMITS 1,787.756278 · MARKETING 4,453.746279 · TRAVEL & LODGING 396.036280 · MISCELLANEOUS EXPENSE 51.436290 · MOBILE COMMUNIC/ANS SVC 11,328.516300 · OFFICE EXPENSE 5,462.706310 · INDEPENDENT CONTRACTORS - INDIR 7,945.006340 · POSTAGE & FREIGHT - INDIRECT 3,660.006355 · REFERENCE EXPENSE-BOOKS 334.036360 · RENT - OFFICE SPACE 44,406.926365 · RENT - WAREHOUSE/STORAGE 433.356370 · REPAIRS & MAINTENANCE 218.496375 · REPAIRS & MAINT - EQUIPMENT 5,735.766380 · REPRODUCTION COSTS 821.136390 · RESEARCH MATERIALS/PLATS 916.006410 · SARSEP CONTRIBUTION - COMPANY 54,541.356420 · SEMINAR/EDUCATION/CEU EXPENSE 5,015.486430 · SOFTWARE 9,320.086440 · SUPPLIES - OFFICE 9,679.326450 · TECHNICAL SUPPLIES - INDIRECT 20,513.716500 · TAXES - OTHER 3,686.036520 · TELEPHONE 6,166.166525 · TOLLS/PARKING 979.256530 · UNIFORMS/SHIRTS/HATS 5,092.586540 · MEALS & ENTERTAINMENT 105.406560 · PAYROLL EXPENSES 56,186.32

Total Expense 1,331,723.56

Earnings Before Interest & Taxes (EBIT) 111,760.16

Other Income/ExpenseOther Income

7030 · INTEREST INCOME 3,826.997040 · DIVIDENDS INCOME 147.207150 · OTHER INCOME 7,055.95

Total Other Income 11,030.14

Other Expense7160 · INTEREST EXPENSE 4,147.92

Total Other Expense 4,147.92

Net Other Income 6,882.22

Net Income 118,642.38

For Period1/1 – 12/31/Year


Cash Flow Statement (CFS)• Sources of Cash, Uses of Cash, Change in Balance during Period• Where things Went During Reporting Period• Start With Net Income (P & L)• End with Cash on Hand at End of Period (Balance Sheet)• Cash vs. Accrual (Adjustments necessary)• Methods: Direct vs. Indirect• More Useful for other Industries, For Multiple Nodes, For Budgetary Projections

Organized By ActivitiesChanges in Cash Attributed to:• OPERATING

• Inflows and Outflows from Core Business• Generally: A/R, A/P, Inventory, Depreciation• Mostly Cash from Ops

• INVESTING • Equipment and Assets• Marketable Securities• Biggest swings are for Equipment Purchases

• FINANCING• Debt, Loans, Dividends

OPERATING ACTIVITIESNet Income 118,642.38

Adjustments to reconcile Net Incometo net cash provided by operations:

1100 · ACCOUNTS RECEIVABLE -17,654.711460 · ADVANCES TO EMPLOYEES 819.451681 · ACCUMULATED DEPRECIATION 89,408.712000 · ACCOUNTS PAYABLE -14,094.662060 · LEASE PAYABLE #1 -2,626.642081 · LEASE PAYABLE #1-A -7,997.922082 · LEASE PAYABLE #2 4,757.032093 · NOTE PAYABLE #1 -10,349.612097 · NOTE PAYABLE #3 -5,085.812098 · NOTE PAYABLE #4 5,450.042094 · NOTE PAYABLE #5 6,140.652100 · PAYROLL LIABILITIES -60.172200 · FED WITHHOLDING TAX PAYABLE 3,836.232210 · SOCIAL SECURITY TAX PAYABLE 839.662220 · MEDICARE PAYABLE 651.76

Net cash provided by Operating Activities 172,676.39

INVESTING ACTIVITIES1570 · EQUIPMENT -47,243.431590 · CAPITALIZED SOFTWARE -16,938.181650 · VEHICLES -39,567.68

Net cash provided by Investing Activities -103,749.29

FINANCING ACTIVITIES2882 · LEASE PAYABLE #2 - L/T 3,926.012898 · NOTE PAYABLE #4 - L/T 5,821.122894 · NOTE PAYABLE #5 - L/T 23,190.663900 · RETAINED EARNINGS (UNCOLLECTABLE) -26,671.79

Net cash provided by Financing Activities 6,266.00

Net cash increase for period 75,193.10Cash at beginning of period 123,044.85

Cash at end of period 198,237.95

STATEMENT OF CASH FLOW“Raw Data”

For Period1/1 – 12/31/Year

Starting Value From Income Statement

198,237.95

Changes in Value of AssetsEquipment Investments/Divestitures

Changes in DebtLoans or Dividends

Changes in CashFrom Core Business Operations

+

+

+

Beginning Balance

+

=Ending Value

Real CASH on Balance Sheet


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FINANCIAL MANAGEMENTWe interrupt this program to bring you an important message about:

DEPRECIATION (AND AMORTIZATION)Depreciation is a Major Source of ConfusionIt is Simply A “Non-Cash” Expense For Balance PurposesCash Implications for Tax purposes Learn to Appreciate Depreciation, I always say…

1) The Useful Life of an Asset – Pattern of UseAn Accounting Entry to estimate remaining value of any Asset(s) on the Books.Straight Line Method effectively re-values Asset over appropriate time period 3, 5, 10 years.The decrease in useful life and value over time as an Asset is “used up”.

2) For Income Taxes- IRS Section 179 (Since 2003,Consult IRS Rules and/or a CPA.)Taxpayers election to reduce taxable income by full value of asset in the year of purchase (even if

financed). Other limitations are involved. Enacted By Federal Gov’t to stimulate economy.Continuation and limitations are subject to change.

3) Amortization GeneralizedAllocation of cost burden over time for acceptable items, start-up, leasehold improvements, etc.


TOOLS FOR CRITICAL SELF ANALYSISTake Aim, Take Action, Observe, Keep Score, Review Scores over Time,

Compare

Goal Categories• Profitability (Operations Efficiency, Income Statement)• Solvency (Balance Sheet)• Liquidity (Balance Sheet)• Stability (Income, Balance and Other Factors)

Consolidate Raw Data• Numbers without Context Can Be Meaningless, even Useless• Determine Items of Importance with Respect to Strategy• Summarize and Highlight Appropriate Indicators



Compare

Summary Reports • Similar Periods Over Time On a Regular Basis

• Hourly, AM/PM, Daily, Weekly, Monthly, Quarterly, Annually, etc.• Balance Sheet and Income Statement (P & L)• Multi Year Periods or Trends (3 Yr, 5 Yr, Lifetime)• Identify Changes and React• Answer Questions:

What Happened ? Why ? Was it Your Intention ?

Control Future (Desired) Variations• Determine Additional Metrics Required • Implement Systems• Make Adjustments, Corrections• Reevaluate and Repeat


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TOOLS FOR CRITICAL SELF ANALYSISTake Aim, Take Action, Observe, Keep Score, Review Scores over Time, Compare

Goal Categories• Profitability (Operations Efficiency, Income Statement)• Solvency (Balance Sheet)• Liquidity (Balance Sheet)• Stability (Income, Balance and Other Factors)

Basic Ratio Analysis• Translation of Sales into Profits

• Gross Margin, Operating Margin, Net Margin, Return on Sales• Use of Assets to Generate Profits

• Returns on: Assets, Net Assets• Inventory Turnover

• Leverage• Debt to Equity• Interest Coverage

• Liquidity• Current Ratio• Quick Ratio

BALANCE SHEET 2004 2005 2006ASSETSCash 90,222 123,105 198,298Accounts Receivable 390,755 467,201 484,856Advances Receivable 0 1,892 1,073Total Current Assets 480,977 592,198 684,227

Equipment 195,886 228,619 275,863Furniture & Fixtures 44,775 50,746 50,746Computer Software 46,974 11,238 28,176Vehicles 140,563 187,129 226,697Accumulated Depreciation (416,361) (469,094) (558,502)Net Property, Plant & Equipment 11,838 8,639 22,980

Other Assets 3,509 3,509 3,509

Total Assets 496,324 604,347 710,716

LIABILITIESAccounts Payable 12,179 53,257 39,163Lease/Notes Payable 16,744 13,336 14,370Total Current Liabilities 28,924 66,594 53,533

Long-Term Debt 28,440 74,666 102,125

Total Liabilities 57,363 141,260 155,658

SHAREHOLDER'S EQUITYPar Value Stock 1 1 1Retained Earnings 437,759 441,447 436,414Net Income (Loss) 1,201 21,639 118,642Total Equity 438,961 463,087 555,057

Total Liabilities & Equity 496,324 604,347 710,716

Smart Land Surveying, Inc.Financial Summary Report

ASK QUESTIONS:

What Happened ?IncreasingDecreasing

Why ?

Was it Intended ?

What CorrectionsAre Needed ?

What Are New Goals ?

What Systems Are Needed ?

YEAR 1 YEAR 2 YEAR 3

ASK QUESTIONS:


Why ?

Was it Intended ?




INCOME STATEMENT 2004 2005 2006Sales 1,072,641 1,184,450 1,443,484

Admin & General 55,372 74,987 80,402Advertising & Marketing 4,039 4,421 4,959Auto Expense 48,847 38,250 41,880Charity 2,000 2,350 3,885Direct Job Expenses 405 34,978 86,797Employee Expenses 73,349 78,628 93,020Insurance 44,879 45,856 47,831Payroll Taxes 51,647 52,954 57,885Repairs & Maintenance 9,991 6,481 5,954Office & Storage Rents 38,242 44,273 44,840Salaries & Wages (Direct) 471,423 421,374 531,973Salaries & Wages (Indirect) 203,453 227,994 220,873Taxes 3,106 4,898 3,686Travel 392 5,355 834Utilities 17,814 17,614 17,495Total Expenses 1,024,962 1,060,412 1,242,315EBITDA 47,680 124,038 201,169

Depreciation & Amortization 56,005 101,111 89,409Interest (Income)/Expense (363) 1,289 174Other (Income)/Expense (9,164) 0 (7,056)Profit Before Taxes 1,201 21,639 118,642Taxes 0 0 0Net Profit After Tax 1,201 21,639 118,642Profit Dist'd / Dividends Pd 0 0 0Net Income 1,201 21,639 118,642




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Compare

Measures of Profit • Operating Margin, Percent Profit• EBITDA/Total Sales (%)• RE/Total Sales (%)• Increasing or Decreasing and Why ?• Look at Trend

Measures of Return• Return on Equity (ROE), Assets (ROA), Common Equity (ROCE)

Profitability vs. Financial Risk• Profit Margin, Asset Turnover, Leverage• “Do it well, Do it Often, Have someone else Pay for it”

Many Other Ratios• Vary From Industry to Industry, even Departments w/in Same Company• COGS, SGA, Advertising, R & D, Segment Data as to Sales


P1 P2

Profit ↑ ↑Liquidity ↓ ↑Debt ↔ ↑Leverage ↑ ↔FMV Asset Utilization ↑ ↑Debt Utilization ↓ ↑Cash Flow (A/R) ↓ ↑

Scrutinize:ProfitabilitySolvencyLiquidityStability

INCOME STATEMENT 2004 2005 2006Sales 1,072,641 1,184,450 1,443,484

Admin & General 55,372 74,987 80,402Advertising & Marketing 4,039 4,421 4,959Auto Expense 48,847 38,250 41,880Charity 2,000 2,350 3,885Direct Job Expenses 405 34,978 86,797Employee Expenses 73,349 78,628 93,020Insurance 44,879 45,856 47,831Payroll Taxes 51,647 52,954 57,885Repairs & Maintenance 9,991 6,481 5,954Office & Storage Rents 38,242 44,273 44,840Salaries & Wages (Direct) 471,423 421,374 531,973Salaries & Wages (Indirect) 203,453 227,994 220,873Taxes 3,106 4,898 3,686Travel 392 5,355 834Utilities 17,814 17,614 17,495Total Expenses 1,024,962 1,060,412 1,242,315EBITDA 47,680 124,038 201,169

Depreciation & Amortization 56,005 101,111 89,409Interest (Income)/Expense (363) 1,289 174Other (Income)/Expense (9,164) 0 (7,056)Profit Before Taxes 1,201 21,639 118,642Taxes 0 0 0Net Profit After Tax 1,201 21,639 118,642Profit Dist'd / Dividends Pd 0 0 0Net Income 1,201 21,639 118,642


KEY RATIOS 2004 2005 2006Profit Margin (EBIDTA/Sales) 4.45% 10.47% 13.94%Profit Margin (Net Inc/Sales) 0.11% 1.83% 8.22%Current Ratio 16.6 8.9 12.8Debt Ratio 0.1 0.1 0.2Debt to Equity 0.1 0.2 0.2Asset Turnover 2.2 2.0 2.0FMV Fixed Asset Turnover 4.9 5.1 5.6Liability Turnover 18.7 8.4 9.3Days A/R 133 144 123Days A/P (modified) 12 9 25




TOOLS FOR CRITICAL SELF ANALYSISTake Aim, Take Action, Observe, Keep Score, Review Scores over Time, Compare

Comparative Analysis• Side by Side with Variances• Did you Accomplish Desired Changes ?• What Changes were not Desired ?• What Caused Changes ?

Areas of Special Concern• Overhead, For Example• Other…

Classroom Exercise


12

ASK QUESTIONS:


Why ?

Was it Intended ?




2006 to 2005% Sales % Sales %

Sales $1,443,484 100.0% $1,184,450 100.0% 17.9%

Salaries & Wages (Direct) $531,973 36.9% $421,374 35.6% 20.8%Salaries & Wages (Indirect) 220,873 15.3% 227,994 19.2% -3.2%Admin & General 80,402 5.6% 74,987 6.3% 6.7%Advertising & Marketing 4,959 0.3% 4,421 0.4% 10.9%Auto Expense 41,880 2.9% 38,250 3.2% 8.7%Charity 3,885 0.3% 2,350 0.2% 39.5%Direct Job Expenses 86,797 6.0% 34,978 3.0% 59.7%Employee Expenses 93,020 6.4% 78,628 6.6% 15.5%Insurance 47,831 3.3% 45,856 3.9% 4.1%Payroll Taxes 57,885 4.0% 52,954 4.5% 8.5%Repairs & Maintenance 5,954 0.4% 6,481 0.5% -8.8%Office & Storage Rents 44,840 3.1% 44,273 3.7% 1.3%Taxes 3,686 0.3% 4,898 0.4% -32.9%Travel 834 0.1% 5,355 0.5% -542.1%Utilities 17,495 1.2% 17,614 1.5% -0.7%Total Expenses $1,242,315 86.1% $1,060,412 89.5% 14.6%EBITDA $201,169 13.9% $124,038 10.5% 38.3%

Depreciation & Amortization $89,409 6.2% $101,111 8.5% -13.1%Interest (Income)/Expense $174 0.0% $1,289 0.1% -641.8%Other (Income)/Expense -$7,056 -0.5% $0 0.0% 100.0%Total Other Costs $82,526 5.7% $102,400 8.6% -24.1%Net Income $118,642 8.2% $21,639 1.8% 81.8%

Key Ratios %Profit Margin (EBIDTA/Sales) 13.9% 10.5% 3.5%Profit Margin (RE/Sales) 8.2% 1.8% 6.4%Current Ratio 12.78 8.89 30%Debt Ratio 0.16 0.15 11%Debt to Equity 0.18 0.16 12%FMV Fixed Asset Turnover 5.55 5.15 7%Liability Turnover 9.27 8.38 10%

Days A/R 123 144 -17%Days A/P (modified) 25 9 64%

Overhead Calculator %Direct Labor Expense $531,973 $421,374 21%Overhead Expense 710,342 639,038 10%Overhead Factor 1.34 1.52 -14%

2006 2005

2006 2005 Variance$110,599

71,304-0.18

0.89

-2116

Variance

3.89 0.02 0.02

0.0640.035

0.40

-1,115-7,056

-$19,873$97,004

-119$181,903$77,130

-$11,702

-1,212-4,521

5,415

1,9744,932-527567

3,6301,535

51,81914,393

Variance$259,034

538

$110,599-7,121


2006 2005

Comparative Analysis (as to Sales)

YEAR 1 YEAR 2 YEAR 1 to YEAR 2

YEAR 1 YEAR 2

YEAR 1 YEAR 2

Understanding Overhead (Another Ratio)

Direct Labor = 1 or 100%• Fringes get a factor• Indirect Labor, General Admin and Expenses get a factor • Arrive at a “Breakeven” Multiplier • Add or Multiply a factor for Profit (Operating Margin)

Implications• Rate Determinations• Job Costs• Tool for Monitoring Overhead• “Optimize” Overhead• Internal vs. Audited Figures• Subject to Strict Rules for Allowed/Disallowed Expenses• Get All available Resources


2006 to 2005DLF DLF dDLF

Sales $1,443,484 2.71 $1,184,450 2.81 -0.10

Salaries & Wages (Direct) $531,973 1.00 $421,374 1.00 0.00Salaries & Wages (Indirect) 220,873 0.42 227,994 0.54 -0.13Admin & General 80,402 0.15 74,987 0.18 -0.03Advertising & Marketing 4,959 0.01 4,421 0.01 0.00Auto Expense 41,880 0.08 38,250 0.09 -0.01Charity 3,885 0.01 2,350 0.01 0.00Direct Job Expenses 86,797 0.16 34,978 0.08 0.08Employee Expenses 93,020 0.17 78,628 0.19 -0.01Insurance 47,831 0.09 45,856 0.11 -0.02Payroll Taxes 57,885 0.11 52,954 0.13 -0.02Repairs & Maintenance 5,954 0.01 6,481 0.02 0.00Office & Storage Rents 44,840 0.08 44,273 0.11 -0.02Taxes 3,686 0.01 4,898 0.01 0.00Travel 834 0.00 5,355 0.01 -0.01Utilities 17,495 0.03 17,614 0.04 -0.01Total Expenses $1,242,315 2.34 $1,060,412 2.52 -0.18Gross Operating Profit $201,169 0.38 $124,038 0.29 0.08

Depreciation & Amortization $89,409 0.17 $101,111 0.24 -0.07Interest (Income)/Expense $174 0.00 $1,289 0.00 0.00Other (Income)/Expense -$7,056 (0.01) $0 - -0.01Total Other Costs $82,526 0.16 $102,400 0.24 -0.09Net Income $118,642 0.22 $21,639 0.05 0.17

Overhead CalculatorDirect Labor Expense $531,973 $421,374Overhead Expense 710,342 639,038Overhead Factor 1.34 1.52

2006 2005

2006 2005


Comparative Analysis (as to Direct Labor)

14,393

Variance$259,034

538

$110,599-7,121

-1,212-4,521

5,415

1,9744,932-527567

3,6301,535

51,819

-119$181,903

$77,130

-$11,702

$110,59971,304

-0.18

-1,115-7,056

-$19,873$97,004

VarianceYEAR 1 YEAR 2

YEAR 1 YEAR 2 YEAR 1 to YEAR 2


13

OVERHEAD CONTROL

OVERHEAD FACTOR YTD Q2 YTD Q3 YTD Q4Direct Labor Expense $271,548.10 $397,382.24 $531,973.08Fringe Benefits 48,957.22 71,875.62 152,952.29General Overhead 184,022.33 289,198.88 557,389.86Fringe Benefits 18.03 18.09 28.75General Overhead 67.77 72.78 104.78Overhead Factor 85.80 90.86 133.53

Smart Land Surveying, Inc.Quarterly Overhead Rate Tracking

• Systems and Tools are Needed• Track, Monitor and Correct• Ratio of Direct and Indirect Labor (big swing)• Goals for “Direct” and “Indirect” • By Position and Payroll $$’s• Fringes• Expenses

Fringe Factor = Fringe Benefits $$Direct Labor $$

OVERHEAD FACTOR YTD Q2 YTD Q4

Direct Labor $$ 150,000$ 250,000$

Fringe Benefits $$ 50,000$ 100,000$

General Overhead $$ 200,000$ 400,000$

Fringe Factor 33.33 40.00

General OH Factor 133.33 160.00

Total Overhead Factor 166.67

Smart Land Surveying, Inc.Quarterly Overhead Rate Tracking

General OH Factor = General Overhead $$Direct Labor $$

Total Overhead Factor = Fringe Benefits $$ + General Overhead $$Direct Labor $$

<Or…additive>

CLASSROOM EXERCISE

Admin & General InsuranceLegal & Professional Fees Liability InsuranceAdvertising & Marketing Property InsuranceLicenses & Permits Worker's Comp InsuranceDues & SubscriptionsMiscellaneous Expenses Occupancy Expense

Office RentsAuto & Equipment Expense Office UtilitiesGas & Tolls Storage RentsRepairs & MaintenanceAuto Insurance LaborTravel Direct LaborVehicle or Equipment Lease Exp Indirect Labor

SubcontractorsEmployee BenefitsHealth & Dental Insurance Payroll TaxesDisability & Life Insurance Employer's FICA MatchRetirement Benefits State & Federal UnemploymentProfessional Development

Smart Land Surveying, Inc.FINANCIAL SUMMARYExpense Categories

OH = OH Expense/Direct Labor


14

% Sales % SalesSales $1,473,000 100.0% $1,232,500 100.0%

Admin & General $94,000 6.4% $100,000 8.1%Auto & Equip Expense 68,500 4.7% 64,500 5.2%Employee Benefits 95,500 6.5% 85,000 6.9%Insurance 46,000 3.1% 38,500 3.1%Occupancy Expense 66,000 4.5% 63,500 5.2%Labor 845,500 57.4% 725,000 58.8%Payroll Taxes 63,500 4.3% 54,500 4.4%Total Expenses $1,279,000 86.8% $1,131,000 91.8%Gross Operating Profit $194,000 13.2% $101,500 8.2%

Deprec iation & Amortization $94,000 6.4% $82,000 6.7%Interest (Income)/Expense (1,000) -0.1% 1,000 0.1%Total Other Costs $93,000 6.3% $83,000 6.7%Profit Before Taxes $101,000 6.9% $18,500 1.5% $82,500

$148,000$92,500

$12,000(2,000)

$10,000

$4,000$10,500$7,500

$9,000

$2,500$120,500

($6,000)

Smart Land Surveying, Inc.FINANCIAL SUMMARY

This Year Last YearVariance

$240,500

Scenario #1

Study Questions:1) What happened to Sales?2) What happened to Labor Cost?3) What happened to other (Non-Labor) Expenses?4) Did any expenses have large fluctuations not related to Sales?5) Compare change in Gross Operating Profit to change in Sales

6) What happened to Overhead?

1) _______________2) _______________ 3) _______________4) _______________5) _______________

_______________6) _______________

Answers:

Trick: D=$580,500 I=$265,000



1) _______________2) _______________ 3) _______________4) _______________5) _______________

_______________6) _______________

% Sales % SalesSales $1,198,500 100.0% $1,232,500 100.0%

Admin & General $123,500 10.3% $100,000 8.1%Auto & Equip Expense 67,500 5.6% 64,500 5.2%Employee Benefits 82,500 6.9% 85,000 6.9%Insurance 40,000 3.3% 38,500 3.1%Occupancy Expense 66,000 5.5% 63,500 5.2%Labor 815,500 68.0% 725,000 58.8%Payroll Taxes 61,000 5.1% 54,500 4.4%Total Expenses $1,256,000 104.8% $1,131,000 91.8%Gross Operating Profit ($57,500) -4.8% $101,500 8.2%

Depreciation & Amortization $94,000 7.8% $82,000 6.7%Interest (Income)/Expense 1,000 0.1% 1,000 0.1%Total Other Costs $95,000 7.9% $83,000 6.7%Profit Before Taxes ($152,500) -12.7% $18,500 1.5%

Variance($34,000)


This Year Last Year

$2,500

$3,000($2,500)

$23,500

$90,500

$12,000

Scenario #2

($171,000)

$125,000($159,000)

$12,0000

$1,500

$6,500

D=$480,500 I=$335,000

% Sales % SalesSales $992,000 100.0% $1,232,500 100.0%

Admin & General $98,000 9.9% $100,000 8.1%Auto & Equip Expense 61,500 6.2% 64,500 5.2%Employee Benefits 82,500 8.3% 85,000 6.9%Insurance 40,000 4.0% 38,500 3.1%Occupancy Expense 66,000 6.7% 63,500 5.2%Labor 775,000 78.1% 725,000 58.8%Payroll Taxes 58,000 5.8% 54,500 4.4%Total Expenses $1,181,000 119.1% $1,131,000 91.8%Gross Operating Profit ($189,000) -19.1% $101,500 8.2%

Depreciation & Amortization $38,000 3.8% $82,000 6.7%Interest (Income)/Expense 4,000 0.4% 1,000 0.1%Total Other Costs $42,000 4.2% $83,000 6.7%Profit Before Taxes ($231,000) -23.3% $18,500 1.5% ($249,500)

$50,000($290,500)

($44,000)3,000

($41,000)

($3,000)($2,500)$1,500

$3,500

$2,500$50,000

($2,000)


This Year Last YearVariance

($240,500)

Scenario #3



1) _______________2) _______________ 3) _______________4) _______________5) _______________

_______________6) _______________D=$400,500 I=$374,500


15

IMPLEMENTATION

Discussion• How Do you make Decisions?

Instinct and Impulse vs. Financial EvaluationTake Emotion out of It

• When do you Spring for Technology? Buy or Lease?• When can you afford to Hire, Create a New Position?• Start a New Department, Expand Line of Services?• What Assets do You Need? What Drives Need?

Business Decisions• Impose Structure to Study Costs• Sample Analysis Types

Breakeven, CVP (Cost-Volume-Profit), Payback Period, Incremental Analysis, Fixed and Variable Costs, Opportunity Costs, Fair Allocation of Overhead

MANAGEMENT STRATEGY

DEFINING STRATEGY• What Business are You in? Not In?

• Strategic Domain-Core Competency• Too Narrow, Too Broad?

• Business Model• How do you make Money? Billable Hours? Is it Scalable?• What is Your Place in the Value Chain? What Value is Added?• Can you adjust to be more Profitable?

• Who Are Your Competitors? Who Could they be?• Current, Obvious, Suppliers, Customers, New Market Entrants,

Substitute Products• How is the Market Changing?

• Technology, Tastes, Rules, Economy• How Are You Positioned in the Market?

• Portfolio of Services, Target Markets, Distinctive Competency, Defense of Position

• What Are Your Sources of Competitive Advantage?

MANAGEMENT STRATEGY

Value Chain

What is Your Place in the Value Chain ?What Value is Added?

Where is Profitability? Do you Move?Current, Obvious Competitors?

How Can you Avoid Being Eliminated?(Difficult Analysis for Service Industry)

MATERIALS COMPONENTS ASSEMBLY DISTRIBUTION AFTER MARKET

CustomerEND USER

LEVEL OFPROFIT

High

Low

M C A D AM


16

MANAGEMENT STRATEGY

Single Line of ServicesProduct Life Cycle +

(-)

CASHFLOW

BREAK EVEN

TIME

Efficiency

(-) Time to market

Life-cycle extension

Faster roll-out

Market penetration

Fasterbreakeven

Decisivetermination

TIME

+

CASHFLOW

+

(-)

MANAGEMENT STRATEGY

A Portfolio AllowsGrowth and Resilience

Single Service

Portfolio of Services

MANAGEMENT STRATEGY

Target Markets (Stretch Goals)• Ability to Serve (Low to High)• Attractiveness of Customer (Low to High)

HighReputation Destroyers Success

Stories

Low

Attractiveness Of

CustomerAspirational Opportunities

TimeWasters

(Eliminate)Cash Cows

Low HighAbility to Serve Customer(“core competencies”)

Very Risky:To offer “Low”Ability to Serve

Move to Better Position or Stretch to Increase Market Share


17

MANAGEMENT STRATEGY

How did Management Models Evolve?

• Human Hunting Groups • Copied Animal Pack Example• Cooperation to Achieve Common Goals

• Cottage Industries• Pride in What you DO-Core Competency• Surnames Expressed Identity/Expertise

• Industrial Revolution-Technology and Scale• New Challenge to Organize People• Only Model for Large Organizations-Military

What is the Structure ?What Do the “Org Charts” Look Like?

COTTAGE INDUSTRYMulti-Functional Team Based on Core Competency Value Chain RoleFrom Materials (Sheep) to Components (Fabric)

Co-LocatedHard WorkingCustomer FocusedQuality Strategy

Grandma

Son18

Son14

Daughter12

Wife

Husband

The WeaversGrandma = Experience

Core Competency

Son 18, ShearerSon 14, Shepherd

Daughter 12, SpinnerHusband, Tinker

Wife, Dyer

All Relationships

MANAGEMENT STRATEGY

MILITARY MODEL-HIERARCHICALRegimented, Rigid, Machine-likeFunctions Based on Orders, Obedience

MANAGEMENT STRATEGY

Standard OrganizationalChart

Worker’sPerspective

Take thisjob andshove it


18

MANAGEMENT STRATEGY

Improvement Needed…• Chain of Command• Ranks (Top, Middle, Rank & File), Castes• Combined Systems: Fractionated Relationships• Worker Dissatisfaction from Bad Management

Chain of Command“Silos”

Rank and File“Castes”

Combination“Fractionated”

MANAGEMENT STRATEGY

Old Management Models• Hierarchical: Machine-like, OK for High Output, Low Cost• Fractionated: Things got Worse, Adversarial Unions,

Labor/Mgt. Divide• More Flexible Models are Required for Service

Modernized Management Models• 7S Framework-Strategy, Structure, Systems, Style, Staff,

Skills, Shared Values• Mismatched Parts, Machine will not Function

• Updated for Greater Flexibility: SPARSE-Strategy, Process, Architecture, Resources, Systems, Empowerment

MANAGEMENT STRATEGY

Management Strategy Formulation• Adapt to an Endless Stream of New Challenges• Establish Approach to Achieve Goals• Consider Factors: Environmental, Competitors, Economic, Regulatory

A Newer Set of Elements Updated for Greater FlexibilityS-P-A-R-S-E MODEL• Customer Needs are at the “TOP”• How well are the Customers’ Needs being Met?• Think: What Causes You to Stop Doing Business with Someone?• Failure to Create Value = Loss of Customers• Enough Customers Lost, Out of Business• Focus on Gaining Competitive Advantage by Providing Greater Value to Customer

CENTRAL ELEMENT:How to Create Value for Your Customers?

A Set of Processes is Required


19

Relationships

Empower

Strategy

Resources

Architecture

Process

Systems

CUSTOMER

Create Value

Cycle Begins1) Formulate Strategy to

Gain and MaintainCompetitive Advantage

“Focus on CreatingValue for Customer”

3) Activate Processes,Integrate and Align all

Structural Components(Internal and External)

2) Re-Engineer orAdjust Processes

to Align withStrategy

4) Structural ElementsRequire Human Power, Equipped

With proper Resources

5) Once Resources are in place and producing, enact

Systems to ensure that Strategyis going according to plan

6) Empower Mangersto make decisions based

on Systems Information and Inputfrom participants at all Staff levels

7) Requires Reiteration, Continuous Realignment,attention to Relationshipsand fine tuning to Stay Ahead of Competition

SPARSE MODEL“Integrate and Align”

Excerpted from:Managing Strategic Relationships, The

Key to Business SuccessBy: Leonard Greenhalgh

Relationships

MANAGEMENT STRATEGY

STRUCTURE IS GOODWhen it Increases Strategic AlignmentEnhances Relationships

STRUCTURE IS BADWhen it Interferes with Strategic AlignmentWhen it undermines cooperative Relationships

SERIES OF PROJECTSDifferent Parts of Organization May Require Different Structures

IMPROVE PRESENT ORGANIZATIONDesign an Organization that Could Steal Your Best CustomersHow is it Different Than Yours?What do you need to Change?

Architecture

NEW FORM OF COMPETITORValue Integrator “Virtual” Organization

BUSINESS GROWTHIdentify OpportunitiesSelect PartnersForm Strategic RelationshipsCoordinate Functions

CoreOrganization

Architecture

Cook

Brewer

Baker

Farmer

Butcher

Hunter

Fiddler

FisherPotter

Cooper

MANAGEMENT STRATEGY

Singer


20

MANAGEMENT STRATEGY

SELF ASSESSMENTWhat is Your Mission? What are Trends?What do you do very well?What needs Improvement?What Opportunities are Available?How do you take Advantage?How do you make Money?Are you rewarded for the Value that you add?How would you increase Profits?

How is Cash Flow?How would you Survive a Downturn?How easy is it for a Competitor to steal a Client?How diverse is your Range of Services?What is your growth Plan?What constraints are holding you back?What is your Long Term Strategy?

MANAGEMENT STRATEGY

EXAMPLE STRATEGIES Operational Excellence Strategy• Do It Better: Quality, Speed, Responsiveness, Cost

Differentiation Strategy• Do It Differently

Customer Relations Strategy• Gain Customer Loyalty• Repeat vs. Conquest Business

STRATEGY MUST BEFocusedLogicalClear and Well DefinedUnderstood and AgreedWell Implemented Forward Looking

OPERATIONS

How Work is Organized and Performed• Can Be Source of Competitive Advantage

3 Level Framework• Mission• Objectives• Management Levers

Mission• Direction for Operations Function• Should Inspire• Clearly State What is Important• Vague Enough to accommodate Change

4 Basic Operations Objectives• Cost (Low, Competitive, Premium)• Excellence-Quality Physical Goods different from

Services• Delivery (Speed, Reliability)• Flexibility (Customization, New, Ability to Change,

Product Mix)

Define• Make Objectives Clear to All• Make Priorities Clear to All

Rank• How are Decisions made when

Trade-offs are Required• Prioritization of Objectives• It May Not be Possible to have All at

Once

Measure• Results from Surveys• Measure Defects• Returns• Warranty Claims• Schedules Met


21

OPERATIONS

Ten (10) Management LeversTactical Steps Necessary to Achieve Goals (Decisions)• Facilities Location (Central Office, Branches, Other)• Capacity-Magnitude and Timing of Expansion• Vertical Integration-Make or Buy, Design, Assemble• Quality Management-Tools, Programs and Techniques to Achieve• Supply Chain Relationships• New Products-Multi Functional R&D Teams, input from Departments• Process and Technology-Production Process and Level of Automation• Human Resources-Selection, Promotion, Placement, Reward and Motivation • Inventory Management-Purchasing, Distribution and Logistics• Production Planning and Scheduling-Controlling and Planning Production

Consistency with Operations Objectives and Within Themselves

Map Process or Series of Processes• Look for Holes• Determine Needs• Utilize Appropriate Management Levers• Make Adjustments to Achieve Goals

OPERATIONS

Task 1Identify WorkOpportunity

Task nProject

Completion

Task 2

Task 4

Task 3

Task 6Task 5

Task n-2 Task n-1

Task Description ResponsibilityPrimary/Support

1 Decision to Pursue PM-PLS “A”

2 Initiate/Prepare File Admin “A”

3 Identify ScopePrepare Proposal

PM-PLS “A” Admin “A”

4 Track LeadTentative Schedule Admin “A”

5 Follow Up w/Client or Negotiate PM-PLS “A”

6 Review Contract Admin “A”

7Project Startup/

Prep Field PackageFinalize Schedule

PLS “B”Tech “A”

## Identify Various Assign

n-2Deliverables/Certification

Rate Client Sat. PM-PLS “A”

n-1 Final Invoice(AR) Books “A”

n Project Close-out Archive Files/Data Admin “A”Tasks …

More Tasks …

Process

LEADERSHIP

Capability to Lead Team• To Make Desired Changes• To Implement Techniques and Ideas• To Provide Clear Direction• Decisions Made by a Team are usually Better

Most Critical Competency• Ability to Learn

Good to Great-Levels of Leadership• Capable Individual-Productive, Good Work Habits• Contributing Team Member-Works well with Group• Competent Manager-Organizer of People & Resources• Effective Leader-Vision, Motivates Others, Stimulates Higher Standards• Enduring Greatness-Will and Humility


22

CUSTOMER ASSETS

Customers Are ___________________OUR REASON FOR BEING, INDISPENSABLE, etc.

We Can do without a lot of things• Money, People, Manufacturing, Equipment

We have Nothing without CustomersWhat Do you do to Add Value for your Customers?Relationship: Employee Satisfaction = Customer Satisfaction• Make sure that everyone in the organization understands that

they have a direct effect on Customer Satisfaction• Find Links, Develop Customer Orientation• As Owner, make everyone Responsible• Encourage Employees to Manage Themselves and Advance• Outsource things Employees do not like to Do

CUSTOMER ASSETS

What Do Your Customers Value?• If it does not add Value, Get Rid of It• Point of Difference, Point of Parity (on Par)• Build on Point of Difference only if all else is Equal

(Like Hygiene)

How Do You Delight Customers?• Help them Solve a Problem• Listen, Innovate, Provide Solutions• Get them to Feel that They Cannot Live without you • Educate Them

Who Do You Ask?• Don’t Assume that you Know What your Customers Value• Ask Your Best Customers

Choosing the Right Customers• More Share of Customers vs. More Customers• Portfolio Analysis

CUSTOMER ASSETS

CUSTOMER ORIENTATION1) Create Value (What does product do?)2) Communicate Value (Explain Savings)3) Sustain Value (Hard to Copy Relationships)For CHOSEN Customers…Get Good Customers, Keep them

Bad Customer• You Cannot Make them Successful• They Do Not Help You Achieve Goals

Limited Resources, How do you use them?• Too much Time Spent on Bad Customers• Good Customers are being Mistreated• Prioritize: Not All Customers are Equal

Systematically Eliminate Bad Customers• Do Not Continue to Waste Resources

All Customers Are NOT Created Equally


23

CONCLUSION

Target SuccessApply AbilitiesSelf-AnalyzeLearn and ImproveReview GoalsQuestionsEvaluationCertificatesThanks

Learn SomethingHave FunDiscover a Few Gems (One?)Think, “Frameworks”Become Your Own ExpertStart and Use “TO DO” ListGet CEU’S

Review Goals/Measure Performance

Date # or P Item Who Needs to be Involved CompleteTO DO LIST

Ratio Analysis Formula TableRatio Measures Formula Conventional Description

Healthy RangeProfit Margin Profitability Net Income 10% or greater Measures how much of each sales dollar is net profit.

Net Sales The higher the better; a higher margin indicates better cost control.

Return on Assets Profitability Net Income Varies by Industry Measures how efficiently assets are converted to profits.(ROA) Total Assets The higher the better; a higher value indicates better asset deployment.

Return on Equity Profitability Net Income Varies by Industry Measures how efficiently shareholder investments are converted to profits.(ROE) Shareholder's The higher the better; a higher value indicates better equity deployment.

EquityCurrent Ratio Liquidity Current Assets 1.0 or greater Demonstrates a company's ability to meet short-term obligations.

Current Liabilities The higher the value, the more liquid the company.

Quick Ratio Liquidity (Current Assets 1.0 or greater Demonstrates a company's ability to meet short-term obligations with its(Acid Test) less Inventories) most liquid assets.

Current Liabilities The higher the value, the more liquid the company.

Debt Ratio Debt Total (ST+LT) Debt 1.0 or less Demonstrates how much a company relies on debt to finance assets.Total Assets Heavy debt = heavy repayment burden = greater risk of insolvency.

Low debt = low interest expense = no tax advantage.

Debt to Equity Financial Long Term Debt Varies by Industry If the value is greater than one, the assets are primarily financed through debt.Leverage Equity 0.5 - 1.5 If the value is less than one, the assets are primarily financed through equity.

Higher value = greater risk of insolvency.

Asset Turnover Asset Net Sales Varies by Industry Demonstrates how well assets are being used to generate revenues.Utilization Total Assets Each dollar of assets generates X dollars in sales.

The higher the better!

Fair Market Value Asset Net Sales Varies by Industry Demonstrates how well fixed assets are being used to generate revenues.Fixed Asset Utilization FMV of Fixed Each dollar of fixed assets generates X dollars in sales.Turnover Assets The higher the better!(FMVFAT)Liability Turnover Debt Net Sales Varies by Industry Measures how many dollars are earned for each dollar owed.

Utilization Total Liabilities The higher the better!

Days A/R Cash 365 Varies by Industry Shows how many days the average client invoice is outstanding.Flow (Sales ÷ A/R)

Days A/P Cash 365 Varies by Industry Shows how many days the average vendor bill is unpaid.Flow (COGS ÷ A/P)


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