Accounting for the Right-Brained Business Owner

Elizabeth Pearce

ProfitGuard4.Biz

415-595-4784 EPearceFSB@comcast.net

Business Coaches Using Profit Guard as a

Consulting Tool

This deck is an overview of a Profit Guard report

Accountants and Business Coaches are encouraged to download it to access the

accompanying text

More information is available at

http://profitguard4.biz/

2

Profit Guard –12 Page Monthly Report

Left vs. Right Brain Functions

Creative Solutions

Innovation

Intuition

Risk Taking

Images

Holistic Thought

Most Business Owners 3

Analysis

Logic

Numbers

Science

Accounting

Linear Thought

Accountant/Bookkeeper

Profit Guard – 12 Page Monthly Report

• Every new client has found $50K or more

• Supplements Traditional Financial Statements

– In Plain English

– Financial Roadmap “The Plumbing”

– Key Ratios and Benchmarks

– Graphs Trends for Each Ratio

– Sensitivity Analysis

– Cash Needs with Growth

• Cash Conversion Cycle4

Profit Guard Report Generation

5

The Next Slide is the RoadmapPrepare yourself: For the left-brained, the next slide is a disturbing image. But for the right-brained business owner this is helpful “road map” of where cash can get trapped in the business - a picture of the financial plumbing of the firm.

Right-brain people will go to the red boxes – this is where the company’s accounting ratios are the farthest from the goals. These red boxes are where management changes will have the largest impact on cash from the business.

Think of this as a flow chart. There is cause and effect. The arrows from each box move in the direction of effect. The actionable solution may be upstream, going against the arrows. This is the cause of the colored box – and a place to start actions to improve the situation. 6

$359,028 (1)

© 2013 Business Resources Services, Inc.

$161,806 (2)

$57,547 (5)

$107,500 (4)

Footnotes(1) $359,028 Cash Impact because of too much Inventory.

(2) $161,806 Cash Impact because of too much Customer Credit.

(5) $57,547 Profit Impact over the time period if the goal was met.

$196,528 (3)

(6) $5,000 Profit Impact on 2% Payable Discounts.

Areas to review as a result of Scorecard

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<25%

25% to <50%

(3) $196,528 Cash Impact that could be saved with longer payment terms.

(4) $107,500 Profit Impact over the time period if the goal was met.

$5,000 (6)

≥50%

Distance From Goal Impact

Cash

Profit

http://www.brs-seattle.com/ProfitGuard/

RoadMap.pdf

Hello Telephone Co. 7/31/12

Period EndingTHE PROFIT ROAD MAP

Poor PricingPoor BuyingBookkeeper

Errors

Low

Productivity

LOW GROSS

MARGIN

LOW NET

PROFIT

High

Borrowing

High

Liabilities

High

Interest

Low Retained

Earnings

No Cash Discounts

on Payables

Low SalesPoor Expense

Control

LOW

CASH

High Current

Liabilities

High Hidden

Costs

Too Much

Inventory

High A/R

Too Much

Customer Credit

Low A/R

Not Enough

Customer Credit

Not Enough

InventoryPoor

Inventory

Control

Shrinkage

Payable

Aging

The Next Slide is More Comfortable

These are the ratios that drive Profit Guard, and the basis of the prior chart

• Financial Stability – Ratios from the Balance Sheet that determine financial health and ability to pay vendors, bankers and creditors.

• Profitability - Gross and Net Margins Ratios

• Asset Efficiency – Turnover (Sale/Total Assets), ROE & ROA, Inventory, A/R and A/P expressed as “Days of Sales”

A key drivers for Profit Guard is the Cash Conversion Cycle.

The Scorecard also shows the peer group information.

Most owners need a consultant to help set goals, which need to be reviewed and adjusted each month.

8

Tw

o (

2)

Mo

nth

s A

go

Las

t M

on

th

Cu

rren

t

Mo

nth

5/31/12 6/30/12 7/31/12Top

10%

Top

25%

50%

AVG

Current Assets 1,543,042

Current Liabilities 604,320

Cash + Accts. Rcv. 863,777

Current Liabilities 604,320

Total Liabilities 1,219,538

Net Worth 1,032,595

Gross Profit 50,000

Sales 350,000

Net Profit Before Tax -34,797

Sales 350,000

Sales 350,000 X 12

Total Assets 2,369,396

Net Profit Before Tax -34,797 X 12

Total Assets 2,369,396

Net Profit Before Tax -34,797 X 12

Net Worth 1,036,462

Cost of Goods Sold 300,000 X 12

Inventory 650,000

365 365

Inventory Turnover 5.5

Sales 350,000 X 12

Accounts Receivable 850,000

365 365

Accts. Rec. Turnover 4.9

Cost of Goods Sold 300,000 X 12

Accounts Payable 250,000

365 365

Accts. Payable Turnover 14.4

© 2013 Business Resources Services, Inc.

Calculations

For Current

Month

Note: NA designates the Metric is

not of value in this company

Greater than 50% from Goal

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Act

ual

Annual

ized

2.5

1.6

29.9%

2.7%

1.9

5%

12%

5.4

Hello Telephone Co.

Period Ending 07/31/2012

Tre

nd Your

Goal

Industry Standard

5.0 4.9▼

Inventory Turnover

2.9

8.1 12.2 24.3

2.4 1.2 0.8

10.4% 6.5% 3.4%

14.2% 11.2% 8.3%

35.0%

5.6

▼

12.2 7.9 5.9

65

5.2 5.5

BALANCE SHEET RATIOS: Stability (Staying Power)

INCOME STATEMENT RATIOS: Profitability (Earning Power)

ASSET MANAGEMENT RATIOS: Overall Efficiency Ratios

9

Accounts Receivable

Turn-Days 79 73 74▲

60

1.5 0.8

2.0 1.2 0.9

0.8 1.0 1.5

45.0%

3029 25▼

45 45 30 1514

Average Payment

Period-Days 32

12.7 14.4▲13

Accounts Payable

Turnover 11.3 8.1

81

12.2

1223

46 62

15.9 7.9 5.9

46 62

10

11Accounts Receivable

Turnover 4.6

71 66Inventory Turn-Days

6.1

3068

4.5

30

12.2▲

8 Return on Investment39.2%

2.7% -18.5%▼

10%

5.8% -40.4%▼

15%

7 Return on Assets18.0%

1.9 1.9▼

2.06 Sales to Assets

2.0

1.4% -9.9%▼

7% 6.5% 5.0% 3.0%5 Net Margin

8.8%

26.7% 14.3%▼4 Gross Margin

35.0%

1.1 1.2▲

0.8

45% 28.0%

1.3

2.6

3 Debt-to-Worth1.2

1.5 1.4▼

2.0

Better than Goal

≤ 25% away from Goal

Greater than 25% from Goal

2 Quick1.7

2.6 2.6▼

2.91 Current

THE SCORECARD

http://www.brs-

seattle.com/ProfitGuard/InconclusiveData.pdf

Historic InformationCash vs. Earnings

Trends

Asset Management & Cash Conversion

10

Issue Profit

Receivables

Inventory

Payables

Payable Discounts $5,000

Gross Margin $107,500

Net Margin $57,547

Total $170,047

=

=

=

=

**Note: 1% improvement in margin would mean an increase in profits of

$3,750 to Hello Telephone Co. based on the last 3 months average.

© 2013 Business Resources Services, Inc.

1% Margin Sensitivity**

Metric Impact

1-Day Sensitivity*

Inventory Turn-Days

Accounts Receivable Turn-Days

Average Payable Payment Period

Margin Metrics (Month)

* Note: A 1 day of improvement in these metrics would increase the Cash

of Hello Telephone Co. by the amount shown based on the last 3 months

average.

$3,750 per 1%

Cash Conversion Metrics

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Hello Telephone Co.

$196,528

Cash Required Cash Lost

$359,028

$161,806

Cash and Profit Impact

$717,361

Period ending 07-31-2012

Margin (Gross or Net)

$9,278 per day

$12,500 per day

$9,278 per day

Sensitivity Analysis

http://www.brs-seattle.com/ProfitGuard/Ass

essment.pdf

PROFIT MASTERY

ASSESSMENT

Cash Conversion Cycle

12

Benchmark Data

Industry data, NAICS code based

Approximately 1,200 Industries

Over 900,000 private companies in Fintel database

After the First Few Meetings

• Profit Guard also has a number of useful planning tools.

• Ongoing consulting opportunity

• Help the owner anticipate changes in the business

• Help an owner become more bankable

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Planning ToolsChanges in Fixed Costs

Variable Cost Shifts

Borrowing NeedsWith Anticipated Growth

Efficiency Adjustments

14

sales

VC

FC

NP

FC Text

Breakeven in Sales

FC

(200,000)$

(175,000)$

Current Break-Even Sales = $1,757,494 Current FC = $1,213,025

This chart shows the change in net profit resulting

from selected % decrease in your variable cost.

For every $1 FC increase, $3.23 sales increase is needed for same Net Profit.

This chart reflects the amount of sales increase that will be needed for various changes in the fixed cost

levels in your company.

Every 1% VC decrease will result in $30,818 of an annual Net Profit increase, correspondingly, every 1% VC

increase will result in $30,818 of an annual Net Profit decrease.

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Current Contribution Margin = 31.0%

© 2013 Business Resource Services, Inc.

-$800

-$600

-$400

-$200

$0

$200

$400

$600

$800

Sa

les R

eq

uir

ed

Th

ou

san

ds

Fixed Costs (FC) Change Thousands

Sales Required to Support Fixed Costs Changes

-$600

-$400

-$200

$0

$200

$400

$600

-16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16%

Net

Pro

fit

Ch

an

ge

Th

ou

san

ds

Percent Variable Cost (VC) Change

Net Profit Impact with Variable Cost % Change

http://www.brs-seattle.com/ProfitGuard

/BreakEven.pdf

BREAK-EVEN

ANALYSISHello Telephone Co

$60K

$195K

-$400K

-125K

Fixed Cost Example

Business Coaches, Bookkeepers,Consulting CFOs, Accountants

• Another tool for consultative relationships

–Additional billable time each month

–A Balance Sheet management tool

– Educational tool for accounting-phobic

• Profit Guard as Referral Source

16

THANK YOU!

17

Profit Guard retails for $199.99/month

Use promotion code EP-dcgejxnfor a risk-free 30-day trial

and price discount