June 11: Financial Bootcamp Episode 3

On June 11, 2019, Kasie and Shennice worked through some of those “must know” numbers for entrepreneurs with some help from Adam Lean. Here are the show notes:

Introductions:

Kasie Whitener, Clemson Road Consulting, DMSB

Shennice Cleckley, Smart Cookie Coaching

Adam Lean, The CFO Project

Theme for day:

Financial Boot Camp Episode 3: Getting Your Ducks in a Row with a CFO

Agenda review:

• Know Your Numbers
• Making the CFO Choice
• Adam Lean and The CFO Project

Segment 1:

This is the third episode of our financial bootcamp series. We heard from Philippe Herndon about crowdfunding for growth. We talked taxes and entrepreneur financial mistakes with Tiffanie Flagler. Now we’re welcoming Adam Lean of The CFO Project into the studio in the second half of the show.

But first, Know Your Numbers. This is the advice I hear so frequently at entrepreneur events and I kept thinking, “Okay, so what are they?”

To get ready for Adam’s visit, I went looking because as Angela Brewer of the SBA reminded us last week, you don’t know what you don’t know.

I found this blog(it’s a list!) that gave 11 numbers you have to know. They are:

First, let’s define the key financial statements you need to understand:

• Balance sheet: Provides a summary of your business’s assets and liabilities at a specific point in time (think of it as a snapshot).
• Income statement: Summarizes the company’s revenue (or sales), minus the cost of goods sold to determine the gross profit, minus all other costs to calculate the net profit. It’s also known as the Profit and Loss statement (P&L).
• Cash Flow Statement: Summarizes how much cash is going in and out of your business during a specific period of time.

Here are the 11:

1. Revenue — the amount of money brought in through the sale of goods and services
2. Expenses — the costs of running the business
3. Profit — the revenue minus the cost of doing business (expenses, depreciation, etc.)
4. Profit ratio — the comparative calculation of profit to revenue that indicates the health and stability of a company
5. Cash — the money the business has in checking or savings, it’s easily accessible
6. Equity — the money invested in the business by the owner and shareholders; owner’s equity is the value of the assets minus the liabilities of the company
7. Debt — a means of acquiring equity, sometimes confused as cash infusions and it can be a means for growth, but taking on debt means a liability that erodes the owner’s equity and makes it difficult to keep a positive cash flow.
8. Tax rate — your local jurisdiction will determine how much of your profit belongs to the government entities supported by your taxes
9. Accounts receivable — the money you are owed from customers; this number is part of your assets; unpaid invoices are included in this number
10. Accounts payable — the money you owe to your suppliers, lenders, and other entities that enable you to do business; this number is a liability
11. Quick Ratio — a short calculation or “acid test” for company stability: Cash + Accounts Receivable + short term investments divided by Accounts Payable or current liabilities; a business with a ratio below 1 might not have the stability to sustain long-term.

Segment 2

This article suggests you need to have mastery of these three concepts:

1. Cash flow from operations — seen in the Cash Flow Statement, this key performance indicator reports how the company operates day-to-day with its revenue and expenses in balance (hopefully!). It excludes long-term investments and new opportunities.
2. Net Income Margin — this is the percentage of profit on every dollar of revenue, essentially how much of each dollar earned is profit; You may have high revenue but low profit and while you’re making ends meet, you’re not as stable as a high-profit, low revenue firm because you don’t have protection against a dip in sales. Not just profit number — while that’s good — it’s the margin percentage that demonstrates long-term stability. It helps you see whether a product is worth the investment.
3. Revenue growth — this is a performance indicator that helps you recognize what product lines are performing well, whether your customer base is drying up, and whether you can expect to be profitable next year and the year after.

This article on Entrepreneur.com assures us that many entrepreneurs don’t have this financial savvy, so that’s reassuring. But, if you’re starting to get traction and you want to make sure your business is sustainable, you need to get on the numbers. Specifically:

1. Working capital. Working capital is the capital you have available to work with today.
2. Revenues. Know your sales on a monthly, quarterly and year-to-date basis.
3. Gross profit. Revenues less the direct costs of producing your product is your gross profit.
4. Profit margin. Subtract the total of your general and administrative expenses from your gross profit, then divide that number by your sales. This number will tell you how profitable the business is.
5. General and administrative expenses. There are typically three biggies over which the business owner has a great deal of control. Know these numbers, and be prepared to adjust them to the current business environment. They include:

1. 1. Compensation. This is often one of the largest expenses for any business.
   2. Marketing expenses. If there does not appear to be a correlation between advertising and sales, then there may be something wrong with your advertising strategy.
   3. Research and development. Be certain to periodically measure your progress by comparing the amount spent with the proximity to the goal.

Segment 3

Okay, so now that we’re all super financially savvy, let’s bring Adam in and let him educate us event further.

Give us your background and tell us a little bit more about The CFO Project.

What super-important financial tips can you share with our listeners?

Segment 4

Events for business owners this week:

1 Million Cups has a field trip tomorrow morning. We’ll be at The Arcade on Main Street to see this new retail space and hear from the developer. It’s regular start time (9 a.m.) but parking can be tricky, so give yourself extra time.

“Scaling Up: You Don’t Know What Don’t Know, What You Don’t Know!”

• A one-day event for women-owned start-ups to learn about what it takes to start/grow your business, how to develop an action plan for your business and one-on-one meetings with local resources that can help you with your marketing and sales strategy, business certifications, business financing and more.
• Thursday, June 13, 2019 – 9:00am EDT

Benedict College Business Development Center

Register here

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