Numbers Coach Advises & Establishes Financial Infrastructure for Pain Management Company Spun-Off from Parent Company

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SITUATION

Pain Consultants of Atlanta, LLC (“PCA”) is one of the leading pain management medical services firms in Georgia. In 2004 a decision was made by the owners to spin off PCA from its parent company.  PCA’s management team recognized the need for financial leadership during this time to help them navigate through the spin off and become a successful stand-alone company.

SOLUTION: Numbers Coach Financial Leadership Services

PCA engaged the Numbers Coach (“NC”) to provide recurring financial leadership services that would assist in the transition to an independent company.  NC developed a detailed plan with specific deliverables to meet the transition deadlines.

RESULTS

PCA has successfully established several key self-sustaining business components:

  • Established a billing department and acquired financing for the billing system and computer hardware necessary for successful in-house financial operations.  An internal billing and collections department allows for greater control and is designed for increased reimbursements.
  • Outsourced accounting functions to a bookkeeping firm, allowing the company to remain focused on their core business, instead of adding fixed operational overhead.  Outsourcing also provided a scalable accounting system that PCA can use during its growth phases.
  • Created and implemented a detailed transition plan to migrate PCA’s employee benefit plans from the parent company in a manner that protected the employee’s current level of benefits.

Prominent Placement

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Company
In 2001, Stacy Williams launched Prominent Placement, Inc. (“PPI”) with the vision of creating a preeminent search engine marketing company.  The company focuses on helping drive targeted traffic to their clients’ websites and generate traffic that converts to sales.  Stacy’s firm is at the forefront of the changes occurring in the online world of search engine marketing, ensuring their clients are up to date on the technologies and methods considered best practice.  But most of all delivering results that grow their clients’ revenue.

Situation
As an emerging growth company, PPI was at a crossroads on several key operational decisions that would impact the company financially.  Stacy and her team needed an understanding of whether the company could afford to make those decisions, including committing to lease office space.  PPI was looking to move from a pure virtual office to a hybrid model (office space and virtual office).  They needed to know how much space they could afford, when best to make the change, and how to fund it.

Solution
PPI hired the Numbers Coach (“NC”) to provide a comprehensive analysis of its financial operations.  NC used its Numbers Navigator™ to assist the PPI team in assessing its ability to fund the key business decisions.  Through a discovery session and gathering of financial data, NC gained an understanding of the key financial drivers of PPI’s business.

Results
NC provided Stacy and her team with a comprehensive financial report that outlined how PPI could implement its decisions and understand the financial impact.

  • A 20+ page financial report with key performance indicators (“KPI”) driving the business
  • An Executive Summary outlining PPI’s cash flow drivers and how to increase cash flow
    • The summary also provided recommendations on what decisions the company could afford to do.

 

“Understanding the financial end of my business has always been my weakest area.  After working with a variety of other financial advisors over the years, Mike Iverson was finally able to explain my own company’s financial data to me in a way that really made sense.  He has educated me on how decisions we make all year long will impact our cash flow at the end of the year (and every day).  I feel like, after nearly a decade in business, someone has finally shined a flashlight into our numbers so that I can really see and understand them.  I feel much more in control.”

Stacy Williams, President
Prominent Placement, Inc.
Strategic Search Marketing

Understanding Your Financial Story: The Numbers Coach’s Numbers Navigator

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I have heard many times that business owners feel that their financial statements are written in a foreign language or that their financials feel like peering into a big black box uncertain what it truly contains.  Others describe it as a fog where they see the outline of their business but it’s not clear how to navigate the rugged coastline.

Often a business owner will understand the income statement and the fact that if you have a positive number at the bottom of the report, it’s good.  The bigger the better!  But then I hear, “wow I had a good year but I don’t have any cash left to pay my bills or make other investments.”

Your financial story has two sides to it, not just one.  It has the income statement plus the balance sheet.  Your balance sheet story is important because if you don’t manage it properly, it can “rob Peter”- the income statement, to “pay Paul”- the balance sheet.  How you manage your working capital will ultimately tell you how much cash is left in your bank account.

Before we go further, let’s define key components of working capital that drive cash flow.  In most companies Accounts Receivable, Inventory, and Accounts Payable are key cash flow working capital components.  How you manage these three key balance sheet accounts determines how much cash is left over.  Simply put, you want to have the shortest payment terms possible for your customers (Accounts Receivable) and you want the longest payment terms possible to pay your vendors (Accounts Payable).   For your inventory, you want to turn it over quickly and not let it sit in your warehouse gathering dust.

By connecting the financial story of the income statement to the financial story of the balance sheet, you can effectively see how cash flow is generated and how much of it you get to keep.

The Numbers Coach’s (“NC”) Numbers Navigator™ helps lift the fog and navigates you to the safety of the harbor where your company can see how to re-fuel and get back out on the high seas of commerce.  Through Trillium’s financial coaching and data gathering process, we gain an understanding of the business model and its drivers to effectively recommend actions best suited for a company to increase cash flow.

NC’s Financial Coaching services and Numbers Navigator™ helped Prominent Placement, Inc. (“PPI”) learn what financial drivers would help the business generate more cash flow and achieve several key financial goals.  Click on the following link to learn more about how NC’s Numbers Navigator™ can help you:  Numbers Navigator™

“Understanding the financial end of my business has always been my weakest area.  After working with a variety of other financial advisors over the years, Mike Iverson was finally able to explain my own company’s financial data to me in a way that really made sense.  He has educated me on how decisions we make all year long will impact our cash flow at the end of the year (and every day).  I feel like, after nearly a decade in business, someone has finally shined a flashlight into our numbers so that I can really see and understand them.  I feel much more in control.”

Stacy Williams
Prominent Placement, Inc.

Business Planning: Having a Business Plan Helps Ensure Sweet Success

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by Tim Fulton

Quick. Name a product or service that you or your business will gain more satisfaction from while it’s being developed or produced than when it’s finished.

Your answer?

“My tax return?” (Wrong answer)

“Chocolate chip cookies?”  (You’re getting much closer)

‘OK, I give up.”

Your strategic business plan!  (“I never would have said that.”)

Well, don’t feel embarrassed. Most business owners and managers do not consider developing a Strategic Business Plan for their organization. In fact, less than 20% of all small businesses have any type of plan in place including operating plans, marketing plans, succession plans, etc.

They deny themselves such pleasure for a number of reasons:

  • “It’s far too difficult to do.”
  • It’s far too costly to do.”
  • “I don’t have the time.”

Imagine that you have hired a builder to construct your dream home. You have this rather vague picture of this house in your mind and you communicate this image to the builder.

Now imagine that your builder plunges into the construction of your home without any architectural plans. No drawings.

In a panic, you stop construction and ask the builder why he isn’t using any plans or drawings?

He responds, “It’s far too difficult to do.” Or “It’s far too costly to have done”.  Or “I don’t have the time.”

It would be crazy to build a home without plans. How long would that “dream house” of yours last if it was not built to any type of specifications? How long do you think your business will last without any direction or strategy?

Now back to my original question.

What is fascinating about developing a business plan is that the greatest satisfaction is derived from the development of the plan itself. Just like baking chocolate chip cookies. I get more enjoyment from eating the delicious cookie dough while I’m baking than I do from the baked goods upon completion. Sometimes I get halfway done baking and stop completely. On rare occasion, the dough never makes it to the oven.

The business plan development process includes the following three steps:

  • Analyze the business as it exists at this moment in time
  • Determine your 3-5 year vision for the business
  • Decide what you need to do to move towards that vision

As you go through this process you will be forced to examine your business, as you have probably never done before. You will uncover your strengths and weaknesses. You will identify market opportunities and threats. You will set goals and objectives and then establish an action plan geared to achieving them.

You will take that image of your “dream house” out of your head and onto paper where it belongs.

When you finish, you will feel exhilarated and motivated like never before. You will find new confidence in your business. If this is not the case, it’s time to bail out. Sell the farm.

Once your business plan is completed, it than becomes your road map for leading your business. You will use it to make sure that the “construction” of your business is just as you have planned for. You may even want to share it with others such as your employees, your banker, or even your family.

Just like chocolate chip cookies.

Cash Reserves Help Your Business Weather the Storm

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by Michael Iverson

“Save it for a rainy day” is an old saying that still makes sense today. In good times, it’s smart to put aside something for the lean times that are sure to follow.

For a business owner, saving for a rainy day means building cash reserves. Liquidity is the lifeblood of any business, and a lack of liquidity is the cause of most business failures. Squirreling away cash during times of prosperity may, one day, save your business.

A cash reserve provides a business owner with the financial flexibility to continue operations during difficult times. In a sluggish economy, for example, a business may receive less cash from operations than anticipated. Customers who lose jobs are unable to pay their accounts on time. As a result, the business owner finds there’s simply not enough cash coming in to meet business expenses.

The owner can’t very well tell employees and vendors that they won’t be paid until customers pay their accounts, or he risks driving them away. A wise business owner wants to keep his employees and vendors happy, so he pays them on time. He usually does so by tapping into the cash reserve he established during good times.

Cash Reserve vs. Line of Credit

Business owners that have the foresight to build generous cash reserves are sometimes reluctant to tap those reserves. When difficult financial times arrive, a business owner shouldn’t feel any guilt about putting those reserves to use. The funds were saved with a specific purpose in mind—one day the business might not be able to generate adequate cash from operations.

When that day arrives, the question to ask is whether it’s best to dip into the cash reserve fund or make use of an available credit line. Usually, the conservative stance that led the owner to build cash reserves prevents him from taking on debt. But, there are circumstances when using the credit line makes sense. We recommend that you pose the question to your financial advisor.

When it’s considered best to use the cash reserve fund, the money will be put to good use. It will pay the salaries of your employees that have helped you achieve so much over the years. Hopefully, they will continue to be productive employees for years to come. This is a time for looking ahead. Make it a celebration of good business planning and loyal employees.

Opportunity Knocks

Cash reserves may also provide unexpected opportunities. Suppose a competitor of yours is highly leveraged. He has grown his business using borrowed money. He didn’t anticipate an economic downturn and never gave much thought to putting aside cash for a rainy day. What happens if his customers can’t pay their bills in a timely manner? He will have a tough time making payments on his business loans. If the problem is serious enough, he might be forced to liquidate the business. His customers could easily become new customers of yours. His employees might become your employees.

Not sure how to reserve some cash every month?  Contact Michael for advice on how to modify your current business financial model to weather future storms.

What Should A CEO’s Role Be?

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by Tim Fulton, Vistage Group Chair

I was asked recently to describe the role of the Chief Executive Officer (CEO) of an organization. As I considered the question I realized that there were at least six that came to mind. I am sure there are more. Here are the six roles of a CEO I described:

Casting Director

I believe that staffing a small business is much like casting a movie or a play. No matter how good a screenplay is, if the cast is not strong, the production will be a flop. Small businesses are the same way. You can have a dynamite business plan, but it’s the people who make it successful.

Jim Collins, author of Good To Great, said it best: “You must get the right people on the bus, wrong people off the bus, and the right people in the right seats.” This may be the most important role of the CEO.

Scorekeeper

I attended my son’s baseball game recently and encountered a very interesting (and frustrating) situation. The game started and it became apparent right away that nobody was operating the scoreboard. No record of balls & strikes, runs scored, or outs recorded. Initially, this did not seem to be a big deal. However, the game progressed, innings passed, & runs were scored. As spectators, we were totally in the dark. We didn’t know who was winning or losing, what stage the game was in (inning), or even what the batter’s count was. The players were just as ignorant about the status of the game as we were because they depended upon the scoreboard as much as we did. Where was the scorekeeper?

How many small businesses are run without a scorekeeper? I believe that there are many. Employees work hard, just like the baseball players, never knowing the results of their efforts. Just as it doesn’t make sense for the baseball scorekeeper to only keep score for himself, it also doesn’t make sense for the business owner to keep his own score and not share the results with his key stakeholders.

Designer

I often share the story of a sculling coach whose team was unable to win any races until he took the time to lift the racing boat out of the water and discovered that the boat had a fatal design flaw. I believe that it is the role of the CEO to oversee the design of his/her business and than make sure that periodically that design is reviewed to make sure it is still working.

Michael Gerber, author of the best-selling book The E Myth, suggests that while designing our business we should assume that it is the first of ten thousand (10,000) locations. What does that mean? I interpret that to say that we should seek out a design that can be replicated and one that ensures the highest level of consistency of performance. Gerber also suggests that we should design our business as if we were designing a game. The game has rules. There must be a way to win the game. The game must be fun. We shouldn’t design a game for our employees that we are not prepared to play ourselves.

Chief Fun Officer (CFO)

Have you ever seen a business that was having fun that wasn’t also very successful? I believe that the two go hand in hand and that ultimately the CEO is responsible for making that happen. Let me be clear: I do not believe that the CEO should do this at the expense of his ability to lead. The CEO does not need to also be the CEY…Chief Executive Yuckster; responsible for making everyone laugh.

The CEO should make sure that employees have the opportunity for fun as it contributes to their performance. Examples of this might be celebrations (birthdays, anniversaries, etc), toys in the workplace (ping-pong, foosball etc.), or just looking for opportunities to be light-hearted. Laughter or even a smile can do wonders in a high stress/high performance work environment.

Storyteller

Leadership guru and Vistage speaker, Don Scminke, shared a leadership model with one of my groups that really made sense to me and my members. He suggested that the results we seek from our employees are a direct result of their work behavior. Their behavior is driven by their beliefs. Their beliefs are a result of the “story”. What story you ask? Our story. The story of your business. There exists a story within every business. Sometimes more than one. The story might be a positive one, thus resulting in great organizational results. Or the story may one of doom and gloom, and hence, performance suffers.

I believe that the CEO is responsible for developing the right story for their business and then communicating that story at every opportunity. In fact, each CEO should have three stories to tell at any given moment: a story about the past, one about the current situation of the business, and maybe most importantly, a story about the future. Consider this, as a young child; how did we learn about life? Most of us did through stories. Not just stories from books, but also stories from our parents, our grandparents, and our friends. At an early age, those stories most certainly impacted our behavior and most likely still impact our lives as adults. Stories are very powerful communication tools…

Race Car Driver

I believe that so much of what a successful CEO does today is managing velocity. Customers want everything faster. The pace of business today is much quicker than ever before. Hence, the CEO needs to be able to accelerate his/her business accordingly. Vistage speaker Ole Carlsson suggests that “the CEO must have his hand on the gear shift at all times prepared to up shift or downshift at any given moment”.

Likewise, the CEO must know when to pull his car over for a quick pit stop when necessary. That’s time to fuel up (cash infusion), check the tires (employee performance reviews or 121 meetings) and check under the hood (planning meeting). One speaker said recently that “changing a business is like changing a flat tire on a car…doing 60 miles an hour”. Not even a racecar driver would attempt that feat.

What have I left out? I’m sure there are several more traditional CEO roles that you find yourself in at times. Which role are you most comfortable in? Which role are you most uncomfortable in? What role is most needed in your organization today? Sometimes it’s better to be asking the right questions than always looking for more answers.

Understanding Fixed and Variable Costs and Your Break-Even Point

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by Michael Iverson

Running a business is difficult enough when you have a good grasp of your cost structure. If you don’t understand the relationship between your fixed and variable costs, achieving financial success in your business will be challenging. Let’s take a closer look at these costs and what they mean for your business.


A fixed cost, simply stated, is a cost that is incurred whether you generate $1 of revenue or not. For example, building rent is typically a fixed cost. A landlord charges a flat fee per month for use of a property. The rent amount will be the same whether a company sells $1 million worth of goods and services or nothing at all. Other examples of fixed costs include insurance, equipment leases, and non-hourly administrative salaries.


A variable cost is incurred as a function of generating revenue. If you do not sell no product or service, you don’t incur this costs. You begin to incur variable costs as you generate revenue. Variable costs include direct hourly labor related to the provision of a service or the manufacture of a product. It can also include sales commissions paid, the cost of raw materials, distribution costs, and utilities expenses related to manufacturing activity.


Metrics You Should Know


Average fixed costs—Identify and quantify the fixed costs associated with running your business, and calculate the average fixed costs for a month. Monthly averages typically work well because some businesses have a degree of seasonality to them. In the example below, Acme Company had average monthly fixed costs of $241,891 for the year 2013.

Average variable cost as a percentage of sales—Simply divide average variable costs for the period by sales for the period to calculate this percentage. If Acme Company had average monthly variable costs of $341,985 and average monthly sales of $856,803, its average variable cost as a percentage of sales is 39.9%.

Break-even point—The sales level at which Revenue equals Total Costs is known as the break-even point. As the term “break-even” implies, Profit is zero after you subtract all of your variable and fixed costs. It can be expressed as the equation:
Revenue – (Total Variable Costs + Total Fixed Costs) = Profit


It’s important to know your breakeven point so you understand at a minimum how much in sales volume you need to generate just to begin to make a profit. Let’s apply the principle to our Acme Company example: 

Avg. monthly sales $856,803 x 12 mo.= $10,281,636 Annual Revenue

Total Variable Costs = $2,902,696

Total Fixed Costs = $4,103,820.
$10,281,636 – (4,103,820 + 2,902,696) = $3,275,120


In this example, Acme Company earned a healthy profit of $3,275,120 for the year 2013. To determine the break-even point, we want to find the sales level where profit equals zero. By definition, fixed costs are static no matter the level of sales. We know the variable costs as a percentage of sales are 39.9%, or .399 for purposes of our equation. We solve for the unknown figure, Sales: 

Variable expenses / (1-.399)= sales required for breakeven $2,902,696 / (1-.399) = $4,829,777


The break-even point is $4,829,777 of sales revenue. Acme Company must generate this level of sales before it can start generating profits for the year.


Managers find it helpful to know the break-even point for purposes of business planning. The break-even point is a basic, but important, business metric. Once a manager becomes familiar with this relationship, he or she gains an understanding of how much the business can expand before adding more capacity—which means adding higher level of Fixed Costs.

If you would like help in finding your business’s break-even point, contact us.  We’re here to help!