The Controllership Group 5 Keys to Peak Financial Performance

1. The Controllership Group5 Keys to Peak Financial Performance

2. Controller/CFO Services • Financial Budgeting and Planning • Financial Reporting and Analysis • Financial Structure Consulting • Business Planning • Accounting Services • Bookkeeping • General Accounting • Software Assistance • Tax Services • Corporate Taxes • Personal income taxes • Sale and Property Taxes Our Professionals Tim Garrison, CPA 317-572-1227 timg@thecontrollershipgroup.com Carl Kinker, MBA, CPA 317-572-1229 carlk@thecontrollershipgroup.com Tina Sims, CPA 317-572-1232 tinas@thecontrollershipgroup.com

3. 5 Keys to Peak Financial Performance Managing your Income Statement Managing your Balance Sheet Managing your Cash (how to use the cash flow statement) Bench marking and metrics Internal Controls (document and use your business processes, policies and procedures) These 5 keys all work together and have major impacts on each other

4. Managing your Income Statement • Management is the key word. Take charge • Do you have a plan, budget or projections in place to measure your actual result against? What about industry statistics? How are you set up to measure results? • Start by looking at the entire income statement. Did you hit the revenue expectations, were any expenses out of line (outside predetermined tolerances) and did we meet our income expectations. • Next look behind the numbers. Even if you hit every item or were within acceptable tolerances you still should look behind the numbers. Dig a little deeper. • Example: Maybe you are a retail company planning a 45% maintain margin and actual result show 44% this may be acceptable but you need to know why you missed the mark and what can you do to make changes to improve margins. • Don’t be afraid to question your plan assumption may be you were too optimistic or even too conservative. • Take corrective action immediately. To be on top of your game you have to be on top of the numbers • Obviously in order to manage the income statement you will need a plan and performance metrics and controls and processes in place for a timely review.

5. Managing your Balance Sheet • Cash may be King but is does not stand alone • Mismanagement of inventory, accounts receivable, and accounts payable can cripple cash flow • Do you know what inventory levels to maintain to meet your sales goals and the timing of the purchase or the length of your manufacturing process. If you manufacture do you know the basics of cost accounting. Too little inventory and you may miss sales and too much and cash is tied up in inventory. Should constantly evaluate. • To manage accounts receivable timely customer invoicing must be a high priority and monitoring your customer accounts is extremely important watching for late and slow payment • Consider doing a credit check before adding a customer or client. It may be prudent to ask for a deposit up front. • Accounts payable terms from Vendors is an excellent inexpensive method of obtaining credit to assist in the management of you balance sheet. Be timely but not early. • As with the income statement set up targets, measurements, controls and procedures • Review the BS number compared to your targets and again look behind the numbers Ask yourself does this make sense based on what you thought or planned . • Debt – short term or long term

6. Managing Cash using the cash flow statement • This is one of the most critical but least understood financial statements • Lenders often look at cash flow projections in connection with a loan request. They want to see how they will be repaid. • Cash flow is more than your checkbook. This is a start but cash flow is much more dynamic. • Cash flow is the measurement of everything that either has or will turn into a cash inflow or outflow. • Cash flow has short term (less than 1 year to convert to cash) and long term components. • There are three basic components of cash flow • Cash used or provided from operations (short term cash) • Cash used or provided from investing (long term cash) • Cash used or provided from financing (both short and long term cash) Beginning cash +/- cash provided or used in operations +/- cash provided or used from investing +/- cash provided or used in financing = Ending cash

7. Cash used or provided from operations Net income (starting point) +/- adjustments from non cash items (+depreciation, +amortization, -gain or +loss) +/- Change in current assets and liabilities (short term cash items) Accounts Receivable: Increase is negative and decrease is positive Inventory: Increase is negative and decrease is positive Other current assets Increase is negative and decrease is positive Other assets Increase is negative and decrease is positive Accounts payable Increase is positive and decrease is negative Accrued expenses Increase is positive and decrease is negative Add it all up to see if you used or were provided cash from your operations Objective should be to generate positive cash flow from your operations. Cash used could be related to a timing issue, a temporary need, or may require better management of the balance sheet. Again look behind the numbers and dig deeper.

8. Cash used or provided from investing • Investing • For most companies the main activity in this section is the purchase or sale of fixed assets such as land, physical plant, furniture, fixtures and equipment (using cash). These items are longer term in nature and typically are financed with long term debt (shows up in financing section). The sale of one of these asset may provide cash. • Other items in this category would include notes receivable, ownership of stocks or bond of other companies or other asset of a long term nature (greater than 1 year). When you purchase these items you use cash and when you sell them you generate or provide cash The total of all the transactions will show either cash used or provided from investing.

9. Cash used or provided from financing • It is important to properly match financing with it’s use. • Term loans should be matched to buying a business, equipment and permanent working capital. Long term in nature. • Short term money (line of credit and charge cards) should be matched to working capital needs short term in nature Typical sources our uses of cash from financing: • Sale of stock – cash provided • Loans from shareholder –cash provided • Payment on loans from shareholder – cash used • Bank or other financing – long term or short term – cash provided • Payments on bank or other financing – long and short term – cash used • Distributions and dividends – cash used Total of these transaction will show cash used or provided from financing. Beginning cash +/- cash provided or used in operations +/- cash provided or used from investing +/- cash provided or used in financing = Ending cash

10. Bench marking and metrics • Measurement tools will vary based on you business and industry • Your bench marks should be more than just financial measurements • Any measurement tool or bench mark should be designed to provide you with important information to assist to in the management and growth of your business and alert you of costs or a process being out of line. • A few examples: • What is your labor cost compared to your expectations (plan) and compared to your industry. • Cost accounting variances from standard cost both quantity and price variances. • Gross margin percentage • Product mix (sales and inventory) and contribution margins • Occupancy cost versus plan and industry and in relation to local market • Accounts receivable aging and payment patterns • Customer or client mix and the percentage of revenue each generates – top 10 • Administrative cost as % or sales versus plan and industry

11. Internal ControlsDocument business processes, policies and procedures • In order to be assured that what you are looking at in your financial statements are “real” numbers you will need systems and controls in place to timely record transactions and insure the accuracy of the information • Documentation of your business process, development of policies and procedures will help insure consistency and accuracy. • Do you know how sales get recorded? How are cost tracked and recorded in inventory? How is inventory relieved when sold? Are there systems in place to identify old or obsolete inventory? When does an outstanding A/R require a phone call? Who signs checks? Who does the bank reconciliation? Who approves new vendors? ETC • This will require some time and thought but without controls how will you manage your business or measure your performance – you can not do it all despite what you may think. • You need to manage your business not let it manage you..

12. Feeling Out of control? Call the Business “TUNE-UP” Pros The Cornerstone of Successful Financial Management 317-572-1225 www.thecontrollershipgroup.com • Controller/CFO Services • Financial Budgeting and Planning • Financial Reporting and Analysis • Financial Structure Consulting • Business Planning • Accounting Services • Bookkeeping • General Accounting • Software Assistance • Tax Services • Corporate Taxes • Personal income taxes • Sale and Property Taxes Contact one of our professionals Tim Garrison, CPA 317-572-1227 timg@thecontrollershipgroup.com Steve Combs, MBA 317-572-1228 stevec@thecontrollershipgroup.com Carl Kinker, MBA, CPA 317-572-1229 carlk@thecontrollershipgroup.com John Swinehart, CPA 317-572-1230 johns@thecontrollershipgroup.com