Date, 2012 Location PROFIT MASTERY A Focus on Unit Profitability Profit Mastery Agent

2 Profit Mastery ® Education - Live - Live/Facilitated Video Programs - Profit Mastery University Web Based Hi-Def Streaming Video (Self-Study) Information - Industry Benchmarking Studies - Bookkeeping Services Accountability - Performance Group Facilitation Provides the FOUNDATION Creates the YARDSTICK Establishes the DISCIPLINE 1

3 Profit Mastery History Proven in over 25 years of Programs Trained over.5 million Entrepreneurs Delivered on 3 continents in 8 languages Serving Business Networks, Banks, Associations and the ASBDC Now offered online in a streaming video format, available 24/7/365

4 Profit Mastery is Unique A Financial Training Program that... Drives Improved Profitability Increased Cash Flow Improves “Bankability!” Is Available Through

5 Business Owner ’ s Roles % FAIL! Sales &Marketing Production HR Finance Purchasing QC/Cust. Svc. Collections Janitor  8 yrs? Winners Losers 1/4 3/4

6 Profit Mastery Basics Measure FINANCIAL PERFORMANCE

7 WHAT GETS MEASURED, GETS MANAGED and What Gets Managed Gets Done! Profit Mastery Basics

8 Profit Mastery Content: 7 Steps to Businesses Success 1. Plan Properly 2. Monitor Financial position The Scorecard The Roadmap 3. Price, Volume, Cost 4. Manage Cash Flow 5. Manage Growth 6.Dealing With Banks 7.Planning for Transition 2

9 Tests…. VC = 70% FC = $144,000 TP = $60,000 1)Needed Sales 2)If FC $1.00, what sales required ______ How does a Business make a Profit? Answer these two questions:

10 Profit Mastery Section 2 Monitor Financial position 1. Plan Properly 2. Monitor Financial position The Scorecard The Roadmap 3. Price-Volume-Costs 4. Manage Cash Flow 5. Manage Growth 6.Banks 7.Planning for Transition

11 Assets = Liabilities + Net Worth Balance Sheet Uses of Profits: To pay for new assets To pay off debt To pay out to the owners Sales Income Statement Net Profit Financial Operating Cycle Efficiency Cash Profit 3

12 Scorecard 4

13 INCOME STATEMENT RATIOS: Profitability (or “Earning Power”) Y-1Y-2 Y-3 Industry 4. Gross Margin Gross Profit 21% 20% 18.5% 22.2% 400,000 Sales 2,160,000 5.Net Margin Net Profit Before Tax 3.5%3.0%.29% 3.82% 6,300 Sales 2,160,000 Profit Mastery Scorecard For every $1 of (bottom #), there is $X of (top #) 5

14 What ’ s their Low Gross Margin costing? Their Margin in Year 3: 18.5% Their Peers ’ Margin: 22.2% Difference +/- 4% Sales in Year 3: $2,000,000 X margin difference: X.04 Margin $ Left on the Table: $80,000 Primary Impact: Profit Low Gross Margin 5

15 ASSET MANAGEMENT RATIOS: Working Capital Cycle Ratios Y-1 Y-2 Y-3 Industry 9.InventoryCost of Goods Sold ,760,000 TurnoverInventory419, Inventory Turn-DaysInventory Turnover Accounts Receivable Sales ,160,000 TurnoverAccounts Receivable270, Accounts Receivable Turn-DaysAccts. Rec. Turnover8 13. Accounts PayableCost of Goods Sold ,760,000 TurnoverAccounts Payable310, Average Payment PeriodAccts. Pay. Turnover5.7 Profit Mastery Scorecard 6

16 Too Much Inventory Industry achieves 4.9 turns Their COGS was $1,760,000 COGS Target Inv. Turns $1,760, = $359,000 – Targeted Inventory –$359,000 Actual Inventory $419,000 How much too much? $60,000 Primary Impact: Cash 6

17 $126,000 (C) $10,000(P) $60,000(C) $16,000(C) $38,000(P) $80,000(P) $7,000(P) $22,000(P) $10,000 (P) $15,000 (P) / $4,000 (P) 7

18 Profit Mastery Assessment Gross Profit Cash NPBT Cascade Office Systems Hidden Costs$19,000 Totals$202,000$106,000 Discounts $10,000 Labor Productivity 38,000 Buying 10,000 Pricing22,000 $80,000 Inventory$60,000 A/R $16,000 Refinance Bldg.$126,000 Interest$7,000 8

19 Profit Mastery Section 3 Price-Volume-Costs 1. Plan Properly 2. Monitor Financial position The Scorecard The Roadmap 3. Price-Volume-Costs 4. Manage Cash Flow 5. Manage Growth 6.Banks 7.Planning for Transition

20 Price-Volume-Costs Your employee breaks something that costs $50, how much in sales do you need to do to cover those lost $$$? You are hiring a new part-time store person for $24K. How much in increased sales do you need before they actually contribute anything? You dream of a new location that will cost you $250,000. What sales will you need to make a return on your investment?

21 A new way… Typical P&L Sales - COG = Gross Profit -Operating Expenses =Net Profit The P&L As Management Tool Sales -Variable Costs =Contribution Margin - Fixed Costs = Net Profits 9

22 Sales Variable Cost Cup Fixed Cost Cup Net Profit Cup Contribution Margin For every one dollar additional of fixed costs, I need X additional dollars in sales. The Cup Theory 10

23 Tests…. Sales= 100% VC = 70% CM = FC = $144,000 TP = $ 60,000 $ 1)Needed Sales = 2)If FC $1.00, what sales required? ____ How does a Business make a Profit? Answer these two questions:

24 Profit Mastery Section 4 Manage Cash Flow 1. Plan Properly 2. Monitor Financial position The Scorecard The Roadmap 3. Price-Volume-Costs 4. Manage Cash Flow 5. Manage Growth 6.Banks 7.Planning for Transition

25 Cash Flow Worksheet 11

26 Cash Flow Worksheet 12

27 Cash Flow Worksheet 13

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29 Profit Mastery Section 5 Manage Growth 1. Plan Properly 2. Monitor Financial position The Scorecard The Roadmap 3. Price-Volume-Costs 4. Manage Cash Flow 5. Manage Growth 6.Banks 7.Planning for Transition

30 Financial Gap: at $600,000 15

31 Financial Gap: at $900,000 Balance Sheet Ratios At $600,000 At $900,000 Current Quick Debt-To-Worth $777,000 Total Liabilities and Net Worth $777,000Total Assets Percent of Sales* 313,000Net Worth345,000Total Fixed Assets 464,000Total Liabilities120,000Land/Building 140,000Long Term Liabilities25%225,000Equipment $324,000 Total Current Liabilities $432,000 Total Current Assets 7%63,000Accruals26%234,000Inventory 15%135,000 Accounts Payable 18%162,000 Accounts Receivable Financial Gap $126,000Note Payable4%$36,000Cash 16

32 Managed Financial Gap Percent of Sales* Percent of Sales* Cash$36,000Note Payable$ 0 Financial Gap Accounts Receivable112,500Accounts Payable75,000 Inventory157,000Accruals63,000 Total Current Assets $306,000 Total Current Liabilities $138,000 Equipment225,000Long Term Liabilities200,000 Land/Building120,000Total Liabilities338,000 Total Fixed Assets345,000Net Worth313,000 Total Assets$651,000 Total Liabilities and Net Worth $651,000 Balance Sheet Ratios At $600,000 At $900,000 At $900,000(MANAGED) Current Current Assets Current Liability Quick Cash + A/R Current Liability Debt-to-Worth Total Liability Net Worth 17

33 Balance Sheet (CF) Checklist Manage current assets Restructure debt Make more profit Sell existing unproductive assets Curtail expansion Lease fixed assets Implement sale-leaseback of existing fixed assets Accept more risk Don’t grow (use pricing, etc. to limit growth) Get new equity 18

34 Profit Mastery Section 6Dealing With Banks 1. Plan Properly 2. Monitor Financial position The Scorecard The Roadmap 3. Price, Volume, Cost 4. Manage Cash Flow 5. Manage Growth 6.Banks 7.Planning for Transition

35 Borrow Properly 19 Fixed Assets Leasehold Imp, Equip, Building Permanent WC Cash / Inv / A/R Seasonal WC Cash Inv A/R Credit Card Line of Credit A/P Int. Debt 3-5 year Long Term Debt Retained Earnings Cash Flow Net Profits plus Depreciation Time

36 Borrow Properly

37 Borrow Properly Cash Flow Pays Back Short-Term Debt Net Profit Pays Back Long-Term Debt 19

38 Banker’s Red Flags The business doesn’t make money Inadequate, infrequent, or inaccurate financial statements Hurried Loan request Unclear, poorly thought-out loan purpose Rapid, unusual inventory build-up Uncontrolled, unmanaged growth Inadequate Cash Flow and coverage of debt service Thinly capitalized operations (current ratio < 2:1) & cash flow is tight 20

39 Banker’s Red Flags (cont) Poor or Marginal personal credit scores Poor = sub 650 Marginal = sub 680 High accounts receivable concentrations if any customer is greater than 20% of total A/R and/or sales Don’t know the major customers, economic forecast, trends, and payment terms No three year financial spread analysis Don’t understand or use benchmarking for financial analysis Don’t know or understand their Key Performance Indicators Are they going to improve, stay the same or deteriorate - and know why? 20

40 Banker’s Red Flags (cont) Multiple entities that are not clearly divided for P and L and cash flow purposes Starting/buying a business with no previous background Any significant management change: –Owner to kids or internal management –Significant owner health issue 20

41 Business Killers Divorce – Owner or key employees 50/50 partners Retired in place Absentee owner Overuse of Credit Cards Permanent, incompetent employees Big imbalance between business and personal time Lack of training/expertise – Business, Succession Expensive or destructive hobbies Rapid growth - Expansion New technology Embezzlement Family transition 21

42 Profit Mastery Section 7 Planning for Transition 1. Plan Properly 2. Monitor Financial position The Scorecard The Roadmap 3. Price, Volume, Cost 4. Manage Cash Flow 5. Manage Growth 6.Banks 7.Planning for Transition

43 Plan for Transition Sell or Merge Liquidate Keep it and Pass it on PLAN! Critical Decisions 22

44 Who Benefits from PM? Business Owners who do not have adequate financial information Business Owners who have the “want to” improve their financial performance

45 The Benefits for Owners Profit Mastery provides Owners: More cash flow and profits Improved success rate Proven and practical content Better understanding of a bank’s loan requirements and makes businesses more “bankable”

46 Profit Mastery Process Internal Training Conference Introduction External One on One Small Groups On-line self-study

47 Why Don’t More Business Owners Do This ? 23 “Don’t have the time” “Don’t know how” “If it was important, my CPA would do it” “It’s not fun” “I’m more of a crisis manager”

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49 Does It Work? Strongly endorsed by participants. Substantially improves financial literacy. Enhances a participant’s relationship with the sponsoring bank. Key Findings from 5,000 participants of Canadian Imperial Bank of Commerce Profit Mastery Program

50 BRS Support Marketing and Program Logistical Support Timelines, Marketing Materials, Administrative Guide Contact with BRS Program Coach Sales clinics via teleconference

51 Testimonial “The Profit Mastery series is an amazing course that provided me the financial insight on how I can better control my company’s profits and cash flow. The series would be great for a start-up or a well established business trying to understand how to make a profit. The Road Map chart and the exercises we did as a group helped me pinpoint areas in all of our departments where we can improve our performance. All business owners should take this series.” Russ Sorkness, President Sorkness Aviation Kent, Washington

52 Testimonial “I’ve used Profit Mastery to improve my margin and understand how a small improvement can have a huge impact on my profitability. I take the Biz FIT test once a year and the loan proposal is a great template for our companies to use.” Jim Sunderland James & Sons Chicago, Ill

53 Profit Mastery It’s all about ABILITY: ControlABILITY BankABILITY SustainABILITY and the outcome…? ProfitABILITY 24

54 Profit Mastery …and that is achieved by: Knowledge Driven Financial Performance 24

55 Thank you! Rod Bristol ext 13 Vice President of Business Development toll free Business Resource Services (fax) 200 First Ave West, Suite (cell) Seattle WA 98119www.profitmastery.netwww.profitmastery.net Follow us on Facebook!