PROFIT MASTERY
A Focus on Unit Profitability
Date, 2012
Location
Profit Mastery Agent
Profit Mastery®
1
Education
Provides the FOUNDATION
- Live
- Live/Facilitated Video Programs
- Profit Mastery University
Web Based Hi-Def Streaming Video (Self-Study)
Creates the YARDSTICK
Information
- Industry Benchmarking Studies
- Bookkeeping Services
Establishes the DISCIPLINE
Accountability
- Performance Group Facilitation
2
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
3
Profit Mastery is Unique
A Financial Training Program that...
Drives Improved Profitability
Increased Cash Flow
Improves “Bankability!”
Is Available Through
4
Business Owner’s Roles
70 - 80%
FAIL!
8 yrs?
3/4
Losers
1/4
Winners
5
Profit Mastery Basics
Measure
FINANCIAL
PERFORMANCE
6
Profit Mastery Basics
WHAT GETS MEASURED, GETS
MANAGED
and
What Gets Managed
Gets Done!
7
Profit Mastery Content:
2
7 Steps to Businesses Success
1. Plan Properly
2. Monitor Financial position
The Scorecard
The Roadmap
3.
4.
5.
6.
7.
Price, Volume, Cost
Manage Cash Flow
Manage Growth
Dealing With Banks
Planning for Transition
8
Tests….
How does a Business make a Profit?
Answer these two questions:
VC = 70%
FC = $144,000
TP = $60,000
1) Needed Sales
2) If FC $1.00, what
sales required ______
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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
10
Financial Operating Cycle
3
Profit
Income Statement
Cash
Balance Sheet
Sales
Assets = Liabilities + Net Worth
Net Profit
Efficiency
Uses of Profits:
 To pay for new assets
 To pay off debt
 To pay out to the owners
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Ratio Analysis Spreadsheet
Year 1
Year 2
Industry Calculations,
Year 3 Composite Trends, or
Observations
BALANCE SHEET RATIOS: Stability (or “Staying Power”)
1.
2.
3.
Current
Current Assets
Current Liabilities
1.7
1.1
0.99
1.8
Quick
Cash + Accts. Rec.
Current Liabilities
0.8
0.5
0.38
0.8
Debt-to-Worth
Total Liabilities
Net Worth
1.5
1.4
2.68
1.2
726,100
734,400
282,300
734,400
823,700
307,300
INCOME STATEMENT RATIOS: Profitability (or “Earning Power”)
4.
5.
Gross Margin
Gross Profit
Sales
21%
20%
18.5% 22.2%
Net Margin
Net Profit Before Tax
Sales
3.5%
3.0%
0.29%
3.2%
4
Scorecard
400,000
2,160,000
6,300
2,160,000
ASSET MANAGEMENT RATIOS: Overall Efficiency Ratios
6.
7.
8.
Sales-to-Assets
Sales
Total Assets
2.3
2.3
1.9
2.4
Return on Assets
Net Profit Before Tax
Total Assets
8.2%
6.9%
0.56%
6.9%
Return on
Investment
Net Profit Before Tax
Net Worth
20.9% 16.5%
2.0%
15.8%
2,160,000
1,131,000
6,300
1,131,000
6,300
307,300
ASSET MANAGEMENT RATIOS: Working Capital Cycle Ratios
9.
Inventory
Turnover
Cost of Goods Sold
Inventory
5.6
8.1
4.2
4.9
10.
Inventory
Turn-Days
360
Inventory Turnover
64
44
86
74
11.
Accounts Receivable
Turnover
Sales
Accounts Receivable
8.9
10
8
8.5
12.
Accounts Receivable
Turn-Days
360
Accts. Rec. Turnover
40
36
45
43
13.
Accounts Payable
Turnover
Cost of Goods Sold
Accounts Payable
12
10.4
5.7
9.8
14.
Average Payment
Period
360
Accts. Pay. Turnover
30
34
63
37
1,760,000
419,000
360
4.2
2,160,000
270,000
360
8
1,760,000
310,100
360
5.7
12
Profit Mastery Scorecard
5
INCOME STATEMENT RATIOS: Profitability (or “Earning Power”)
Y-1
4. Gross Margin
5. Net Margin
Gross Profit
Sales
Y-2
Y-3
Industry
21% 20% 18.5% 22.2%
400,000
2,160,000
Net Profit Before Tax 3.5% 3.0% .29% 3.82% 6,300
Sales
2,160,000
For every $1 of (bottom #), there is $X of (top #)
13
Low Gross Margin
5
What’s their Low Gross Margin costing?
Their Peers’ Margin:
22.2%
Their Margin in Year 3:
18.5%
Difference
+/- 4%
Sales in Year 3:
X margin difference:
$2,000,000
X .04
Margin $ Left on the Table: $80,000
Primary Impact: Profit
14
Profit Mastery Scorecard
6
ASSET MANAGEMENT RATIOS: Working Capital Cycle Ratios
Y-1
Y-2
Y-3
Industry
9.
Inventory
Turnover
Cost of Goods Sold
Inventory
5.6
8.1
4.2
4.9
1,760,000
419,000
10.
Inventory
Turn-Days
360
Inventory Turnover
64
44
86
74
360
4.2
11.
Accounts Receivable
Sales
8.9
Accounts Receivable
10
8
8.5
2,160,000
270,000
40
36
45
43
Turn-Days
360
Accts. Rec. Turnover
360
8
13.
Accounts Payable
Turnover
Cost of Goods Sold
Accounts Payable
12
10.4 5.7
9.8
1,760,000
310,100
14.
Average Payment
Period
360
Accts. Pay. Turnover
30
37
360
5.7
Turnover
12. Accounts Receivable
34
63
15
Too Much Inventory
6
Industry achieves 4.9 turns
Their COGS was $1,760,000
COGS
Target Inv. Turns
$1,760,000 = $359,000
4.9
Actual Inventory
$419,000
– Targeted Inventory
–$359,000
How much too much?
Primary Impact: Cash
$60,000
16
7
$126,000 (C)
$16,000(C)
$60,000(C)
$10,000(P)
$38,000(P)
$10,000 (P)
$22,000(P)
$7,000(P)
$80,000(P)
$15,000 (P) / $4,000 (P)
17
Profit Mastery Assessment
8
Cascade Office Systems
Gross Profit
Cash
Discounts
NPBT
$10,000
Labor Productivity
38,000
Buying
Pricing
10,000
22,000
$80,000
Inventory
A/R
$ 60,000
$ 16,000
Hidden Costs
Interest
$19,000
$ 7,000
Refinance Bldg.
$ 126,000
Totals
$ 202,000
$106,000
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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
19
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?
20
A new way…
9
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
21
Tests….
How does a Business make a Profit?
Answer these two questions:
Sales= 100%
VC = 70%
CM =
1) Needed Sales =
FC = $144,000
TP = $ 60,000
$
2) If FC $1.00, what
sales required? ____
23
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
24
Cash Flow Worksheet
11
25
Cash Flow Worksheet
12
26
Cash Flow Worksheet
13
27
14
28
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
29
Financial Gap: at $600,000
15
30
Financial Gap: at $900,000
Percent of
Sales*
Cash
Accounts Receivable
Inventory
Total Current Assets
$36,000
4%
162,000
18%
234,000
26%
Note Payable
Accounts Payable
Accruals
Total Current
Liabilities
$432,000
Equipment
225,000
Land/Building
Total Fixed Assets
Total Assets
Percent of
Sales*
25%
$126,000
15%
63,000
7%
$324,000
140,000
120,000
Total Liabilities
464,000
345,000
Net Worth
313,000
Total Liabilities and
Net Worth
Financial
Gap
135,000
Long Term Liabilities
$777,000
16
$777,000
Balance Sheet Ratios
Current
Quick
Debt-To-Worth
At $600,000
2.18
1.0
.95
At $900,000
1.33
.61
1.48
31
Managed Financial Gap
Percent of Sales*
17
Percent of Sales*
Cash
$36,000
Note Payable
Accounts Receivable
112,500
Accounts Payable
75,000
Inventory
157,000
Accruals
63,000
Total Current Assets
$0
Total Current Liabilities
$306,000
$138,000
Equipment
225,000
Long Term Liabilities
200,000
Land/Building
120,000
Total Liabilities
338,000
Total Fixed Assets
345,000
Net Worth
313,000
Total Assets
Total Liabilities and Net
Worth
$651,000
Financial
Gap
$651,000
Balance Sheet Ratios
At $600,000
Current
Current Assets
Current Liability
2.18
Quick
Cash + A/R
Current Liability
1.00
Total Liability
Net Worth
0.95
Debt-to-Worth
At $900,000
1.33
0.61
1.48
At $900,000(MANAGED)
2.22
1.08
1.08
32
Balance Sheet (CF) Checklist
18
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
33
Profit Mastery
Section 6
Dealing 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
34
Borrow Properly
19
Seasonal WC
Cash
Inv
A/R
Credit Card
Line of Credit
A/P
Permanent WC
Cash / Inv / A/R
Fixed Assets
Leasehold Imp,
Equip, Building
Cash Flow
Net Profits
Int. Debt 3-5 year
Long Term
Debt
Retained
Earnings
Time
Net Profits
plus
Depreciation
35
Borrow Properly
19
Cash Flow Pays Back Short-Term Debt
Net Profit Pays Back Long-Term Debt
37
Banker’s Red Flags
The business doesn’t make money
20
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
38
Banker’s Red Flags (cont)
20
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
40
Business Killers
21
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
41
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
42
Plan for Transition
22
Critical Decisions
• Sell or Merge
• Liquidate
PLAN!
• Keep it and
Pass it on
43
Who Benefits from PM?
Business Owners who do not have adequate
financial information
Business Owners who have the “want to”
improve their financial performance
44
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”
45
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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48
Does It Work?
Key Findings from 5,000 participants of
Canadian Imperial Bank of Commerce
Profit Mastery Program
Strongly endorsed by participants.
Substantially improves financial literacy.
Enhances a participant’s relationship with the
sponsoring bank.
49
BRS Support
Marketing and Program Logistical Support
Timelines, Marketing Materials,
Administrative Guide
Contact with BRS Program Coach
Sales clinics via teleconference
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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
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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
52
Profit Mastery
24
• It’s all about ABILITY:
ControlABILITY
BankABILITY
SustainABILITY
and the outcome…?
ProfitABILITY
53
Profit Mastery
24
…and that is achieved by:
Knowledge
Driven
Financial
Performance
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Thank you!
Rod Bristol
Vice President of Business Development
Business Resource Services
200 First Ave West, Suite 301
Seattle WA 98119
bristol@profitmastery.net
206.284.5102 ext 13
800.488.3520 toll free
206-282-4092 (fax)
206.427.5333 (cell)
www.profitmastery.net
Follow us on Facebook!
www.facebook.com/profitmastery
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