Numbers Coach Helps Medical Firm Stay Financially Focused

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The Company

 Georgia Pain and Spine Care (“GPSC”), founded by Dr. Charles Brownlow in 2010, is a leading pain management medical services firm that provides comprehensive solutions to help restore each patient to their original lifestyle.  The company uses progressive approaches to pain management with education, counseling, and minimally invasive procedures.  Their mission is to relieve pain, increase productivity, and improve the quality of life for its patients using technologically advanced treatment regimens through is various metro Atlanta offices.

Situation

 In 2020 the GPSC team wanted to enhance their financial management and reporting capabilities.  They wanted to create a platform to communicate the company’s key performance indicators (“KPI”) and help educate its key team members on what drives its company’s financial results.  In addition, the GPSC team wanted a “road map” that could guide them as they made financial decisions impacting strategies for growth.

Solution: The Numbers Coach Financial Leadership Services

 The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing GPSC’s performance metrics.  NC developed a financial scorecard to focus on the financial measurements that drive company profits and cash flow critical to sustained profitable growth.  The scorecard offers an “at a glance” view of results.  NC developed a financial model from its proprietary software the Numbers NavigatorTM .  The software provides a road map for the GPSC team to see where they are headed with profits and cash flow.  The software’s rolling financial forecast provides the GPSC team with a tool to make critical decisions “on the go” to achieve their desired results.

Results

NC pulled together financial and non-financial data to complete a scorecard and financial model.  Each month NC meets with the GPSC team to methodically review results and provide the input and analysis from the Numbers NavigatorTM financial software.  From the monthly financial coaching meetings, the GPSC team can take actions on activities that improve the company’s bottom line results.

For more information on Georgia Pain and Spine Care visit www.gapaincare.com

To learn more about the Numbers Coach financial leadership services, click here

“Mike has become an important part of our team.  His understanding of financial processes, cash flow, and approach to educating us on our results gives our team the right tools to help us understand how to navigate our finances successfully and stay focused on our financial goals.”  

Dr. Charles Brownlow, Founder / Medical Director
 

Keep the Boat Afloat: Strategies for Securing Your Finances Through A Global Pandemic Storm

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By Michael Iverson

We are in an unprecedented time – one that is impacting most businesses in the United States and the world. And there’s no telling what the fallout will look like or even how long social distancing and company shutdowns will continue.

As a numbers coach for my business clients, many of them are asking for advice and guidance during this volatile and unpredictable time. I assure them that as a business owner or leader, a number of financial factors remain under their control. Here’s what I’m emphasizing:

Lead where you can: Communicate and Be Flexible

Change and uncertainty are all around us right now: How long shutdowns and isolating will last, the long-term macro- and micro-economic impact of this crisis on businesses, families, and communities around the world, or whether people will regret buying a year’s worth of toilet paper are unknown. We have little to no control over most of this.

What you can control is how you react.

No one knows exactly what to do – and that’s OK. Your strategic decisions can keep your company afloat through this crisis.

Communication: Transparent and honest communication isn’t a new concept, but it is more important now than ever. Explain to employees, customers, and other stakeholders that, like everyone else, your business is experiencing the ramifications of the coronavirus. Explain your challenges and your high-level strategy to overcome them. Everyone is more likely to empathize if you communicate honestly and authentically. The health and safety of your employees is the most important priority.

Keep the communication flowing – ask where they’re struggling the most, and where you can help. Offer a free brainstorming session. Remember – your goal is to maintain the relationship so it can grow after this crisis passes.

Flexibility:  As you’re asking for flexibility from your clients and employees, consider offering some in return. I always encourage my clients to have a 3- to 6-month cash reserve. Times like these are why you held that money. Offer customers a modified payment plan or if you can relax payment terms for products or services like ongoing license support or maintenance.

For employees, be flexible with time, productivity and deliverable expectations. People’s daily lives have been upended, from homeschooling and supervising children to caring for sick family members. And for the most part, they want to do their best for you while figuring out their situation. Consider staggered or flexible work schedules. Relax deliverable dates where possible.

If you have employees with a lighter workload during this time, give them the opportunity to shine when others are overwhelmed. Maybe ask for a volunteer to provide updated COVID-19 information both medical and financial. Dedicate someone to helping employees take advantage of cost- and time-saving benefits such as telemedicine, wellness programs, and EAP offerings.

But also remember as crucial as communication is, too much information, repeating the same message with minor tweaks, or asking employees to be constantly online or send hourly updates are all examples of actions that could provoke burnout and deeper anxiety. Remember, we’re all getting corona-related messages from companies we haven’t heard from in years. We’re all figuring out this out together. Don’t unnecessarily add to the cacophony.

Pivoting to new operational models

With office and business closures, we’ve shifted to working almost entirely online. Engage customers and prospects virtually through platforms like WeChat, Zoom, Skype. For those with whom you haven’t engaged with this way, the novelty may actually open doors. Use email lists and social media analytics to reach new leads. Try apps like Trello or Monday or dig out that intranet project you’ve been putting off, to organize and detail projects so everyone is working together.

Prioritize initiatives that require less capital, less risk, and have a proven positive impact on cash flow. It is possible to continue to operate debt free and maintain access to capital. For more cash preservation guidance, check out the “Preserving Cash in Uncertain Times” article I published last week.

If your company’s situation is looking dire and you’re considering layoffs, consider looking into a four- or even three-day work week to reduce costs. If employees are sitting on the bench due to loss of client work or decrease in demand, ask if they could use their PTO now or agree to work half time or take unpaid leave. Look into emerging government programs to cover salaries. The Cares Act is landmark legislation passed on March that has several key programs:

  • Paycheck Protection Program Loan with a forgiveness provision
  • Economic Injury Disaster Loan program as part of the Small Business Administration
  • Employer 6.2% payroll tax deferral program
  • The Unemployment supplemental insurance program

The following link provides more detail on the programs and what is offered:  COVID-Bill-3-Summary

If you need to consider across-the-board pay cuts, keep them in direct relation to job positions. Start first with voluntary cuts. Some employees are looking for ways to help others who can’t afford a pay cut. For example, the CEO should lead by example and take the largest pay cut, the highest paid employees take the next highest cut, and so on down the line.

Finally, if you haven’t already, postpone all travel and make every effort to allow employees to work from home.
Negotiate with vendors, who are undoubtedly making changes of their own. Look for extraneous expenses to eliminate, and lower cost alternatives to conventional advertising. Look into whether your insurance coverage can help. Leave no stone unturned when looking at ways to conserve cash.

Learn, grow, breathe. We’ll get through this!

It may be the last thing you want to think about, but now is the time to take note of practices that will prevent repeating mistakes in the future.

Take notes. If you didn’t have a solid disaster recovery plan ready this time, prepare one for the future using knowledge you acquired during the COVID-19 pandemic.

And no matter how brilliant and detailed your plan is, expect things to continue to go awry. When this happens, stop, take a few deep breaths, remember your training, focus on the end goal, and make the most rational decisions possible.

If you’re looking for more guidance, I’m happy to talk. Give me a call at (404) 353-2148 or email me. I’m here to help.

With hope, gratitude, and cooperation, it won’t be long before we turn our TVs, smart phones, and laptops on and see nary a mention of pandemics.  Until then, stay safe and be well!

Keep Your Finger on the Pulse of Your Business

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There are plenty of ways to measure the financial success of your business: profit margins and revenue growth, for instance.  But do the old standby measures give you the whole picture? It’s never too early or too late to try out new ways of analyzing the financial health of your business.

I recently came across a 2017 Inc. magazine article written by entrepreneur and author Norm Brodsky. In “Pencil Power” he suggests an assessment method that would have been called “old fashioned” in the past, but today might be termed “retro.”  It involves—brace yourself—a pencil and paper.  (Yep, I’m coming back to the same pencil and paper I mentioned in a blog post a few months ago.)  Brodsky believes that tracking monthly sales and gross margins by hand is especially beneficial to new, or relatively new, business owners.

He says the practice will improve young businesses’ chances of success 100 times over:

“By writing the numbers down and doing the calculations yourself, you begin to have a feel for the relationships between them. Later on, when other people are reporting numbers to you, you’ll be better able to recognize when something’s wrong.”

Brodsky recommends a simple exercise to try at the end of each month: write down sales, cost of goods, gross profit, and gross margin of each product for both the month and year-to-date. Then write down the same information for each customer.  This is a quick way to see where you are saving money and where you aren’t.

If your business is already doing a good job tracking these metrics, there might be others that could shine light on an area that’s erratic or negatively trending. Try writing down monthly inventory holding costs or Accounts Payable and Accounts Receivable totals. Maybe some cash flow metrics need attention.

It’s a painless, 30-minute exercise that just might surprise you by exposing a weak or strong area of your business that’s been hiding in the dark. Add it to your evaluation and decision-making arsenal. I suspect you’ll find it insightful.

Let us know if we can help you track your metrics.

Do You Know Your ROCE?

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How Measuring Your Return on Capital Employed is Critical for Financial Health

There are so many ways to measure a company’s financial success: profit margin, return on equity, and return on invested capital.

Return On Capital Employed (ROCE) is a lesser known but equally important financial indicator. ROCE is especially useful for evaluating your company’s macro level financials or other companies to invest in. It’s essential because it goes beyond simple profit margins to specifically assess how well a company runs, conducts its business, and returns value to investors.

ROCE is the total of a firm’s assets and revenues minus current liabilities. The ROCE ratio is simple:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT)/Capital Employed

The higher the result of the formula, the more efficiently a company is utilizing its capital. If a company’s ROCE has gone up since last year or in the last few years, it indicates a company is going in the right direction. At a minimum, ROCE should exceed the cost of capital (financing costs), or the company can find itself in a bad financial state.

ROCE is especially useful in comparing how different companies in the same industry leverage their capital, particularly in capital-intense industries like energy, auto, and telecommunications that habitually hold a large amount of debt.

Don’t confuse ROCE with ROE (return on equity), even though both are profitability ratios that measure a company’s profitability as related to funds invested. ROE takes profits generated from shareholders’ equity into consideration, as opposed to ROCE, which uses all capital employed including the company’s debt.

ROCE percentage is one of the tools for judging the performance of managers and how effectively they are running a business. It’s a good idea to look at the industry average and the ROCE of competing companies.  The ROCE percentage is one of the few metrics that does allow you to compare across industries and within your industry.

If employed capital is not given in financial statement notes, it can be calculated by subtracting current liabilities from total assets. Watch for poor quality profits, such as the sale of expensive equipment that can’t be repeated regularly, as these can create an artificially high ROCE. Other factors such as leasing versus purchasing equipment can also lead to a slightly higher ROCE.

Despite the value of evaluating a company’s ROCE, it should not be the only factor used for an accurate assessment of financial stability; other probability ratios certainly contribute to the whole picture.  However, knowing your ROCE percentage is important metric for a business owner to keep track.  Your ROCE percentage provides the business owner the return they are getting on their investment in the company.

If you want to learn your ROCE percentage, feel free to reach out to Mike to get a free template at Mike@trilliumfinancial.com.

Small Business Matters: “The Importance of Financial Management”

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In this episode of the “Small Business Matters” podcast, Numbers Coach Mike Iverson discusses the importance of careful financial management for the long-term survival of your business:

How this “J” Can Help You Make Strategic Decisions Easier

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by Tim Fulton, Small Business Matters

How often do you get “stuck” on a big strategic decision? If you are like many small business owners, the answer is “too often”. It may be a key employee hire, a capital decision, the purchase of a large fixed asset, or may be a decision to exit the business. None of these are easy decisions and easy to get paralysed in making the final call.

One of the best tools I have found for making tough strategic decisions is the “J Curve”. A popular blog for mid-size businesses, ShortTrack CEO, said the following about J Curves:

“The process of identifying, prioritizing, and managing J Curves is the most important determinant of entrepreneurial success.”

By definition, a J Curve investment is any strategic decision to spend money today for a benefit tomorrow. Any hiring decision is a J Curve. Any significant new customer is a J Curve. Any major allocation of capital resources is a J Curve. A marketing decision such as the offering of a new product or expansion into a new market is a J Curve. The list goes on…

Here are the 3 phases of the J Curve:

  1. The first phase of the J Curve is the “investment. How much will we need to spend in time or money on this investment? If it’s a new piece of equipment; this would include the cost of the new asset, set-up and training time, and any costs associated with ramping up the new equipment.
  2. The second phase of the J Curve is “catch up”. We have now moved based the bottom of the curve and we are trying to move towards break-even as quickly as possible. We again measure this phase in time and money. If it’s a new hire, the employee has completed his/her orientation and training and now is moving towards achieving the results we have set expectations for this new employee.
  3. The third phase of the J Curve is “blue sky”. We have moved past break-even on our investment and we are now moving towards achieving a maximum return on investment (ROI) on this big decision. The new sales rep starts making big sales. The new customer starts placing sizeable orders. The new piece of equipment has doubled our production capacity.

There are several important rules for managing J Curves:

  • Measure the depth and width of the valley. It’s typically measured in either time or money or both. My experience is that we very commonly underestimate both of these as they relate to the decision. We expect the new sales rep to deliver new customers in three months and it takes six months. We anticipate the new customer to place an initial order of $100K and instead we get $50K.
  • Do not become emotionally attached to your J Curve. You may need to abandon it at some point in time. Your newly hired CFO has grossly overstated his qualifications for the job. Are you prepared to wait a year to see him grow into the position or cut him loose and start over?
  • Watch the number of J Curves you have at any given time. The average for small business executives is 5-7 at any given moment. My guess is that if I sat down at the desk of any of my clients I would find at least that many strategic decisions in the making. Any more than that is problematic. Any less than that is a cause for concern as well. I suggest you keep a J Curve register on your desk, which can be a legal pad with a list of your current J Curves just to keep score. What is the current status of each one?
  • Is there a plan for moving from Phase 1 to Phase 3 for each J Curve? There needs to be a unique course of action for moving efficiently thru each phase.
  • Watch out for “W” curves. You have reached Phase 3 and all of a sudden you find yourself back at Phase 1. What happened?

It’s time to get “unstuck” on your big strategic decisions. Thinking of each one as a J Curve is a great first step. You now also have a new vocabulary in which to think of these decisions and discuss with your key executives. Good luck!

Buffett’s Advice for Financial Success

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The “Oracle of Omaha” has created an impressive following of people and his investing results have proven the test of time.  Below are some simple bits of wisdom that I believe are timeless.

  1. Never lose money.  Buffet’s rule # 1 is to not lose money.  And his rule #2 is to remember rule #1.  Keep in mind if you lose 50% of your investment, then it takes 100% return to get back to even.
  2. Get high value for low price.  What he means is value is what you pay for.  Make sure that you are paying the right price for the value in the product, business or investment that you are buying.
  3. Build healthy money habits.  Habits are what drive our behavior.  It’s been said that finance is 80% behavior and 20% math.  If we don’t change poor behaviors with our wallet then we can’t expect to find success with money or building a business.
  4. Avoid debt and, more specifically, avoid credit card debt.  Credit card interest rates can be as high as 18% and more.  If you have to roll over your credit card balance regularly, then you can’t afford spending on it.  In effect, you are trading your future for your present satisfaction.
  5. Keep cash on hand.  Come up with what your minimum cash balance needs to be.  Is it 3 months or 6 months of expenses?  “Cash is to a business as oxygen is to an individual: Never think about it when it is present, the only thing in mind when it is absent,” said Buffet.
  6. Invest in yourself.  Your biggest income producing asset is yourself.  Improve your skills to make yourself more valuable to the market.  Unlike other assets and investments, “Nobody can tax it away and they can’t steal it away,” said Buffet.
  7. Learn about how to manage money as a part of the investment in yourself.  Not everyone enjoys this subject, however, there are simple methods to follow that help you win with money.  Spend less than you make. . . save 15% into a low cost index mutual fund. . . it’s not how much you make, it’s how much you decide to spend.
  8. Trust a low-cost index fund. Expenses matter when it comes to returns on your investments.  Consistently adding to your investments each month or quarter exercises an important “money muscle.”
  9. Give back on a regular basis.  Giving of our “time, talents, and treasure” to our community and nonprofits is a natural law of human nature where we want to help others in need.  Giving produces psychic benefits for the giver and it helps society move forward.
  10. Invest for the long term.  Investing not only with dollars but in ourselves is a long term game.  Building true financial security takes time.  As Buffet said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”

Together these pieces of advice can help take us on the journey to financial security.  The advice is simple and timeless.

Let us know how we can help you achieve financial success in your business!

Get a Feel for Your Business by Writing Down the Numbers

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In the era of smart phones, smart cars and smart homes, you might feel advice about tracking your business results with an old-school number 2 pencil is a little out of step.  You shouldn’t.

There is an old saying: “From lips to pencil tips,” which suggests that by physically writing your key figures you become more familiar with them.  Like a golfer who leaves the course saying, “I need to do better than a double bogey on number 7,” entrepreneurs who track their key figures by hand are extremely aware of what they need to improve.

Writing the key figures down month after month, you commit them to memory and become more focused on their importance to your success.  It’s a practice that is highly recommended for new business owners, and I know several veteran business owners who swear by it.

What you should track

Take a piece of paper and write your key performance figures (check out our Metrics for Success guide for more info on these numbers as well).  For most business owners, the common ones are:

  • Sales by month
  • Gross profit by month
  • Net profit by month
  • Cash flow by month
  • Accounts receivable
  • Accounts payable

Sales by month measures top-line revenue growth.  In business, either your company is growing or it has begun dying.  Watch this number closely.  Consider what is going on within your industry, both nationally and in the local market.  Set a sales goal each month that represents true, attainable growth.  If you fall short, take time to understand why and take corrective action as necessary.

Gross profit by month measures a company’s markup on its cost of goods (or services) sold.  This figure gives an indication of how well ownership has controlled its costs and, possibly, whether goods and services are priced in line with what the market will bear.  In times of inflation, it’s easy for cost increases to outpace increases in your selling prices. Committing this number to paper will help keep you abreast of the situation.

Net profit by month builds on the gross profit by month analysis.  While gross profit focuses on cost of goods or services sold, net profit also encompasses administrative expenses, interest and taxes.  If gross profit is optimal but net income is lagging, take a hard look at trimming administrative costs. Perhaps there is a way to manage interest costs. Consider hiring a tax expert who is knowledgeable of your industry.

Cash flow by month measures the company’s liquidity.  It’s how much cash is getting added to or subtracted from the bank in your bank account.  By recording this figure each month, you will naturally begin thinking about short-term, upcoming events that will impact your liquidity. Many service industry clients prepare for weak cash flow in the month of December, when people have holiday-related expenditures in mind. Conversely a retail business expects its best cash flow to occur in December.  Seasonal aspects to a business is a fact of life that should be considered in the business plan.

Tracking Accounts Receivable helps to see how much you expect to collect in the next 30 to 60 days.  Seeing this account grow can be either the result of sales growing or another issue like a customer slowing down their payments.  Understanding the reason for the growth will help you better understand your future cash flow.

Accounts Payable is the amount you owe vendors that must be paid within the next 30 to 60 days.  This balance can tell you how much cash will flow out of your business and thus plan the disbursements based on your inflows from Accounts Receivable.

Focus on important customers

In addition to tracking the numbers, it’s wise to use a second sheet of paper to track results on a customer-by-customer basis. This makes it very clear which customers are most important to your success. And, if an important customer starts slipping away, you will quickly become aware and might be able to salvage the relationship. Your second sheet will track:

  • Sales by month by customer; and
  • Gross profit by month by customer

If sales to a significant customer slip unexpectedly, learn what you can from the employee servicing the account. Then, follow up personally with the customer. It could be that the customer has fallen on difficult times. Maybe there is a competitor trying to make inroads.  Whatever the cause, do what you can to nip it in the bud.

When gross profit by customer increases or decreases from one month to the next, you want to know why. This is a very real measurement of where you are making money and where you are losing it. You need to understand what has happened to that one customer relationship. If gross profit for that customer is up, can you move other customer relationships in the same direction? If it’s down, can you prevent the cause from impacting other customers?

If you would like to get more detailed information on these metrics, download our Metrics for Success guide. If you have questions about how to get started or what your numbers are telling you, give us a call at (404) 353-2148 or email info@trilliumfinancial.com.

How ABC can Help with Your 123s

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by Anne Moore Odell

Sometimes, it can feel like your hands are tied when it comes to costs—everything from rent and salaries to materials. As you closely examine every line of your company’s income statements looking for ways to cut costs and grow profits, pay particular attention to direct and indirect costs as two levers you can adjust to maximize revenues.

Smart companies are figuring out which indirect and direct costs are fundamental to their operations, which activities can be outsourced, and which can be done away with altogether. Activity-based costing (ABC) is a powerful method for computing indirect and direct costs, to help you determine precisely where money is being spent and made.

Defining Direct and Indirect Costs

Simply defined, direct costs vary with your sales while indirect costs do not vary directly with changes in sales. Explains Mike Iverson, Numbers Coach, “If you don’t sell a widget, your direct cost isn’t there, but if you don’t sell a widget, you still have indirect costs.”  Direct and indirect costs are sometimes also referred to as variable vs. fixed cost.

Direct costs can be logically connected to the creation of a product or the completion of a service. These costs can include materials and labor. It is even possible to calculate the exact cost of the materials used to create one unit of a product and the amount of labor necessary.

Indirect costs are the bucket into which the other costs of doing business are dropped, including rent, marketing, sales, accounting and executive costs. Indirect costs are more difficult to connect to the cost of your product and service. For example, if you make three product lines, it is very difficult to directly correlate the salary of the receptionist to a unit of product.

“Indirect costs, sometimes referred to as overhead, are controlled using a combination of vendor contracts, vigilant operators and timely financial reports,” says Bob Wagner, President of NetFinancials, Inc. headquartered in Atlanta. “We have one operator that paid a substantial amount for on-going repairs and maintenance expense. Most of the repair expense has been consolidated in a single vendor, which the operator monitors very closely using the budgeting feature in the financial reports that we provide.”


ABC Tracks and Applies Actions to Accounting

Activity-based costing (“ABC”) can help you understand and manage costs by looking at every activity in a business, and then assigning the cost of the activity to the product created. This makes it possible to designate more costs as direct versus lumping costs into indirect.

Iverson says that with ABC companies need to ask, “What activities do I engage in to make this product and how can I allocate my burden to that product?” In this model, companies examine which activities are driving both direct and indirect costs. Instead of lumping all indirect costs an indirect cost pool, activity-based accounting allocates and tracks expenses as they occur by activity.

“Activities-based accounting can get to the nitty-gritty of WHY you are incurring the cost in the first place,” says Iverson.

For example, assume Widget Company audits their client’s freight bills as their service.  The freight bills are received electronically directly from the client’s freight carrier vendor.  Widget Company has an Information Technology Department (“IT”) that maintains the computers and equipment which perform the audit of the client freight bills.  Can IT costs get allocated?  If so, how?  Widget Company using ABC determined that the maintenance and repair of the computers and equipment occurred based on the use of the equipment, in other words the volume of transactions getting audited by the systems.  Based on how many freight transactions were audited (the “activity”) Widget Company determined the best allocation of the IT maintenance and repairs expense was based on the number of audited freight bill transactions.  The allocation using ABC enabled Widget Company to a better picture of profitability by client.

Working with Costs in Real Time

Reviewing your income statements shouldn’t be just a quarterly or annual activity it should be monthly so that you can find ways to manage and limit expenses. One proven method of cutting both indirect and direct costs is following them as they occur.  “Accurate, timely financial statements and reports are essential in giving management the information they need to manage their direct costs,” explains Wagner. “With the speed of today’s business, only real-time reports give managers the feedback they need to manage costs.”

Wagner gives as an example the weekly report his company delivers to clients. Sales, cost of sales, banking, credit card and payroll data are obtained in real time using scanners, email and high-speed Internet. Weekly reports are prepared within 48 hours of receiving the data, ensuring that managers stay informed and on top of their operations.

Let us know how we can help you with ABC in your company.

Wondering How Your Company Stacks Up Against the Competition?

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by Michael Iverson

At one time or another, every business owner yearns to see how his or her company stacks up against the competition within the same industry. Comparing a company’s financial performance against that of its peers is likely to provide clues about how to improve the company’s results. For instance, it would be important to know whether a company’s administrative costs are significantly higher than those of others in the same industry.

Unfortunately, it’s not always easy to access competitive data. Competitive companies aren’t likely to publicly share financial results. Even if they do share some information, a large difference in size of a comparative company makes analysis difficult.

One way around the problem is to conduct the analysis using a Common-Size Income Statement, which converts a company’s income statement from dollars to percentages.  Every line on the income statement is expressed as a percentage of Net Sales.

Using common-size income statements makes it possible to compare companies that are different in terms of size but in the same industry. While it might seem unlikely to compare two competitors with Net Sales of $4 million and $100 million respectively, focusing on percentages can bring relevance to the analysis.  It also helps spot trends in your business, when comparing results to a prior period, for instance.  You can address the issues before it’s too late.

In the example below, Warning Lights of North Georgia’s income statement is shown alongside its common-size income statement. In the left-hand column are raw, dollar-denominated figures. The right-hand column shows the converted percentages.  The percentages are based on a percentage of sales.  In other words, you would divide the expense by the sales.  For example, in the spreadsheet below, selling expense of 11.9% is determined by the following formula: 1,223,000/10,281,000= 11.9%.

 

Now, Warning Lights of North Georgia’s results can be compared – line by line if so desired – to those of any other company in the industry.  (The financial statements of publicly-traded companies are accessible through the Securities and Exchange Commission’s EDGAR database or its Canadian equivalent SEDAR.)  Industry averages are compiled by national trade associations and a handful of competitive intelligence information services.  Banks, business brokers and good business libraries are likely sources of such information.

Using common-size financial statements, it is possible to determine how your company performs within its industry against the competition. Common-size income statements may be particularly useful in measuring the cost-effectiveness and profitability of a company against its peers as well as spotting trends when comparing multiple periods of your own financial results.

Numbers Coach Helps a Content Publisher Stay Financially Focused

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The Company

EB Medicine (“EBM”), founded by Robert Williford, and it is carried on by family members Stephanie Williford and Robin Wilkinson.  EBM provides high quality content for the physicians who want to stay on top of issues in their specialty.  This includes study guides for a physician to keep up their continuing medical education and stay abrest of new methods or technologies.  EBM products are produced by practicing physicians from leading institutions around the world with a broad range of clinical expertise.

 

Situation

In 2016 the EBM team wanted to enhance their financial management and reporting.  They were looking to create a platform to communicate the company’s key performance indicators (“KPI”) that drive its financial results.  In addition, the EBM team wanted a “road map” that could guide them as they made financial decisions impacting strategies for growth.

 

Solution: The Numbers Coach Financial Leadership Services

The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing EBM’s performance metrics.  NC developed a financial scorecard focusing financial drivers that give the team visibility into the profits and cash flow critical to sustained profitable growth.  The scorecard offers an “at a glance” view of results.  NC also developed a financial model that provided the road map for the EBM team to see where they were headed with profits and cash flow.  The model provides a rolling forecast during the year so that EBM team could make financial and operational decisions to achieve their goals.

 

 

 

Results

NC pulled together financial and non-financial data to complete a customized scorecard and financial model.  Each month NC meets with the EBM team to methodically review results and provide the input and analysis from the scorecard and financial model.  From the monthly financial mentor meetings, the EBM team can take actions on activities that improve the company’s bottom line results.

For more information on EB Medicine visit www.ebmedicine.net

To learn more about the Numbers Coach financial leadership services, click here

“Mike has been an important part of our team over the past year.  His understanding of financial processes, cash flow, and how to explain our results has provided our team with the right tools to navigate our finances successfully and stay focused on our financial goals.”  

Stephanie Williford, CEO

Numbers Coach Helps Manufacturer Improve Financial Results

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The Company

Direct Refrigeration Sales (“DRS”), founded by Tim Litsch, provides a high quality alternative to OEM replacement parts for the refrigeration industry.   One of their primary parts is a gasket that seals a refrigeration unit when closing the door and ensures the contents remain cold and intact inside the unit.  DRS products are of such quality that even several OEMs in the food service industry source with DRS for their replacement parts.

Situation

In 2016 Tim Litsch wanted to enhance his financial management and reporting.  The DRS team was looking to create a platform to communicate the company’s key performance indicators (“KPI”) that drive its financial results.  In addition, they wanted to see what needed to be done for the company to extract themselves from financing that was non-traditional but necessary to carry the business forward.  The DRS team wanted visibility through a financial model that would tell them what needed to be done to move from non-traditional financing to traditional bank financing at a lower cost.

Solution: The Numbers Coach Financial Leadership Services

The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing DRS’s performance metrics.  NC developed a financial dashboard scorecard focusing financial drivers that provide visibility into the profits and cash flow critical to sustained growth of a business.  The scorecard offers an “at a glance” view of results.  NC also developed a financial model that provided a road map for the DRS team to see where they were headed with profits, cash flow, and the pay down of debt.  The model provided a rolling forecast during the year so that Tim and his team could make financial and operation decisions to achieve their goals.

Results

NC effectively pulled together the required financial and non-financial data to complete a dashboard scorecard and financial model.  Each month NC meets with the DRS team to methodically review results and provide the input and analysis from the scorecard and financial model.  From the monthly meetings, the DRS team implemented actions to take on activities that would improve the company’s bottom line results.

For more information on Direct Refrigeration Sales, visit www.directrefrigeration.com

To learn more about the Numbers Coach financial leadership services, click here

“Mike has been an integral part of our team over the past year.  His solid understanding of financial reporting processes and cash flow has provided our company with the right tools to navigate our finances successfully and help us stay focused on our financial goals.”  

Tim Litsch, Founder / CEO