benchmarking for success - amazon web services...forecasting cash after operations (lin e 14): 2016...

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Benchmarking for Success

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Benchmarking for Success

Roger Jacobi, CEOFiscal Advantage, LLC

What does benchmarkingmean to CEO’s, CFO’s, andtheir business advisors?

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Agenda Historical Analysis

Income Statement Balance Sheet

Introduction to Benchmarking The 6 Step Process Gap Analysis Forecasting

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Benchmarking History

From ruins, to the 2nd largest economy in the world.

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What is your role in yourorganization?

Poll Question #1

Income Statement

Balance Sheet

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8

FinancialStatements

ActionableData

FiscalAnalytics

4748

4041424344454647484950

Industry Company

Rece

ivab

leDa

ys

Account Receivable Days

59

94

40

50

60

70

80

90

100

Industry Company

Inve

ntor

y Da

ys

Inventory Days

67.30%

68.02%

64.00%

65.00%

66.00%

67.00%

68.00%

69.00%

70.00%

Industry Company

COGS

% o

f Sal

esCOGS as a % of Sales

26.00%

28.86%

20.00%

22.00%

24.00%

26.00%

28.00%

30.00%

Industry Company

Expe

nse

% o

f Sal

es

Operating Expense as a % of Sales

Benchmarking, A Process

Benchmarking – What is it?• Compares company results to standards• Measures the gaps that exist• Develop a plan to close the gaps• Continued benchmarking to remain efficient

Benchmarking – What are the standards?• Compares company results to industry• Compares company to their best performance

Benchmarking, A Process

Benchmarking – What are the benefits• Process to improve financial performance to

operate at peak efficiencies – allows for;»Expanding operations – growth»Reducing liabilities – debt»Increasing equity»Generating a return to shareholders

Benchmarking promotes the efficient use of time & resources

Six-Step Benchmarking Process

CommunicateWith Buy-in

GatherData

GatherNeeded Data

Benchmark &Measure Gaps

RecalibrateMonitorResults

Devise Plan &Implement

Six-Step Benchmarking Process

CommunicateWith Buy-in

GatherData

GatherNeeded Data

Benchmark &Measure Gaps

RecalibrateMonitorResults

Devise Plan &Implement

On-going process

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What role doesBenchmarking play in your

business today?

Poll Question #2

Gather Needed Data

• What core data is needed?• Cash drivers of the business

» Sales» Cost of Goods Sold» Operating Expenses» Receivables» Inventory» Payables» Capital Expenditures

Gather Needed Data

• To what standards should we benchmark?• Industry comparables – industry averages

» Industry sources – online» Fiscal Checkup™ uses RMA» NAICS (North American Industry Code System)» Which NAICS defines the company?

• Historic best the company has achieved» Measure the best past performance

Benchmark & Measure Gaps

COST OF GOODS SOLDIndustry Average % of SalesIndustry Average 67.30%Company Latest 68.02%Difference ( 0.72%)

Revenues $13,501,000Difference (.0072%)Excess Cost $97,207

Company Best % of SalesCompany Best 68.02%Company Latest 68.02%Difference 0.00%

Revenue $13,501,000Difference 0.00%Excess Cost $0

Goal to reduce COGS by $97,207

Benchmark & Measure GapsPROFIT IMPROVEMENTCost of Goods SoldOperating ExpensesAdded PROFIT Potential

AR PotentialInventory Potential

CASH IMPROVEMENT

Added CASH PotentialTOTAL PROFIT & CASH RECOVERY

$97,207


OPERATING EXPENSESIndustry Average % of SalesIndustry Average 26.00%Company Latest 28.86%Difference (2.86%)

Revenues $13,501,000Difference (2.86%)Extra Cost $386,128

Company Best % of SalesCompany Best 27.26%Company Latest 28.86%Difference (1.6%)

Revenues $13,501,000Difference (1.60%)Extra Cost $216,016

Goal is to reduce Operating Expenses by $386,128

Benchmark & Measure GapsPROFIT IMPROVEMENTCost of Goods SoldOperating ExpensesPROFIT Potential


CASH IMPROVEMENT

CASH PotentialTOTAL PROFIT & CASH RECOVERY

$97,207$386,128

$483,335

Are these realistic measurements?

Lower Goals to Attain Start low Achieve result Raise bar Achieve result Raise bar

No consistent goalsAdded complexityReal goal not established

Are these realistic measurements?

Benchmark for Excellence Benchmark for best Recalibrate

Lower Goals to Attain Start low Achieve result Raise bar Achieve result Raise bar

No consistent goalsAdded complexityReal goal not established

Consistent end-gameKeeping it simple

AR Days & Turnover Data

Receivable Turns = Credit Sales / Receivables

Industry Receivable DaysBest Company Receivable DaysLast Company ReceivablesLast Company Sales

47 Days47.01 Days (Sales/AR)

$1,802,000$13,501,000

Current Company $13,501,000 / $1,802,000 = 7.49 turns

Industry 365 / 47 = 7.77 turnsIndustry Turnover = 365/AR Days

Best Company 365 / 47.01 = 7.76 turns


RECEIVABLESIndustry AverageIndustry AR DaysIndustry Turns (365/47)

AR Goal (Sales/7.77)

Current ARExcess Receivables

Company Best AR TurnsBest Turns (365/47.01)

Excess Receivables

Goal is to reduce average AR by $64,419

477.77

$1,737,580$1,802,000

$64,419

7.76

AR Goal (Sales/7.76) $1,739,819Current AR $1,802,000

$62,180

(> turns is better)


Receivable PotentialInventory Potential

CASH IMPROVEMENT


$97,207$386,128

$483,335

$64,419

Inventory Days & Turnover Data

Inventory Turns = COGS / Inventory

Industry Inventory DaysBest Company Inventory DaysLast Company InventoryLast Company COGS

59 Days88.25 Days (COGS/Inventory)

$2,351,000$9,184,000

Current Company $9,184,000 / $2,351,000 = 3.90 turns

Best Company 365 / 88.25 = 4.13 turnsInventory Turnover = 365/Inventory Days

Industry 365 / 59 = 6.18 turns


INVENTORYIndustry AverageIndustry Inventory DaysIndustry Turns (365/59)

Goal (COCS/6.18)

Current InventoryExcess Inventory

Company Best Inventory TurnsBest Turns (365/88.25)

Excess Inventory

Goal is to reduce Inventory by $864,916

596.18

$1,486,084$2,351,000

$864,916

4.13

Goal (COGS/4.13) $2,223,728Current Inv. $2,351,000

$127,271

(> turns is better)



CASH IMPROVEMENT


$97,207$386,128

$483,335

$64,419$864,916

$929,335$1,412,670



CASH IMPROVEMENT


$97,207$386,128

$483,335

$64,419$864,916

$929,335$1,412,670

3.50% profitincrease

20% ofassets

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Which area do you thinkhas the greatest need for

improvement in yourbusiness?

Poll Question #3

Communicate and Buy-inCOMMUNICATEExplore findings – Don’t sellWhat are the implications?Need to be inclusive for buy-inEducate those as needed

Identify ways to improve cash flow and profitabilityFocal Point

Communicate and Buy-in$1,251,000

Communicate and Buy-in

Unclaimed Profit goal from Op Ex $386,000Added Enterprise Value, 6x of profits $2,316,000

Cash Flow goal from Inventory $865,000

Some opportunities might require involvement with yourexternal CPA or other business advisors.

Implement PlanPick primary focus areas.



CASH IMPROVEMENT


$97,207$386,128

$483,335

$64,419$864,916

$929,335$1,412,670

Implement Plan• Pick primary focus areas• Review those operations• Devise a plan to reduce Gaps

IMPLEMENT PLAN Seek consensus for plan Create realistic processes Have clear shared goals Determine measurement

dollars and frequency period

Review impacts of planwithin and out of company

Present plan to all parties Empower those who will

carry out plan

Monitor Results• Monitor results• Review deviations from plan• Report what is & isn’t working

Key to Monitoring Results:

Have written procedures to allow for proper monitoring of allchanges and track to determine the successful changes tokeep and those procedures that can be eliminated.

Recalibrate• Decide what is relevant• Continue to communicate• Change what isn’t working

The key to the entire benchmarking process:

Benchmarking is dependent on the company’s continuousefforts to the process. Do let any changes become temporary.Rather, benchmarking should become part of the culture.

Every company needs to benchmark to improve performance.

An efficient cost structure and cash management comes first.

Its all about an efficient use of resources to compete in the future.

Benchmarking results and recalibrating tomeet future obligations is the key to financial success.

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Which of the steps do youthink will be the most

challenging?

Poll Question #4

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ForecastingThreeYearForecast:

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ForecastingBest Recent Performance:

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ForecastingAchieve Industry Comparables:

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Forecasting EBITDA (line 7):

2016 Recent Best: 33% Improvement2016 Industry Avg: 56% Improvement

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Forecasting Cash After Operations (line 14):

2016 Recent Best: $464,238 Improvement2016 Industry Avg: $1,446,810 Improvement

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Forecasting Cash Surplus (Needs) (line 17):

2016 Recent Best: $464,237 Improvement2016 Industry Avg: $1,446,810 Improvement

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Forecasting Debt Service Coverage Ratio (line 27):

2016 Recent Best: 33% Improvement2016 Industry Avg: 56% Improvement

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Summary Introducing a benchmarking process is the

only way to improve results. If it isn’tmeasured, it is difficult to achieveimprovement goals.

Once the fiscal analytics and benchmarkingprocesses identifies areas for improvement,forecasting will provide the company with aclear financial roadmap.

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Other Services Business Clients Need?

Survey Says… 55% Top priorities are financial 49% Need help to accomplish priorities 44% Accounting Firm is having low or no impact 12% Plan to seek a new accounting firm

Source: What SMBs Want, Sleeter 2015

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Fiscal Checkup

Assist companies that want to implement changeto improve business value

Empower Business Advisors who want to be acatalyst for that change

Provide a proven process to identify key financialparameters that have greatest potential impact

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Creating a Financial Roadmap

Cost of Goods Sold Operating Expenses Capital Expenditures Margin Analysis Payroll as % of Sales Break Even Analysis 54 Financial Ratios Payables to COGS Profit per Employee

Accounts Receivable Accounts Payable Inventory Growth Rates Revenue per Employee Working Capital Mgmt Inventory to Sales Net Fixed Assets to Sales Margin on New Sales

Operating Expenses per Employee

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Discounted Cash Flow Capitalization of Earnings Multiple of EBITDA Multiple of Book Value Multiple of Earnings

… and a blended value that is validated

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Changeable Variables:1. Sales Growth Rate2. COGS as % of Sales3. Operating Expenses as % of Sales4. AR Days5. AP Days6. Inventory Days7. Capital Expenditures as % of Sales

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Affordable: $495 list price Discounts & subscriptions available for Advisors

Grow Advisory Service Revenue Improve Client Retention Secure New Business Clients

www.FiscalCheckup.com

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Two Free ReportsFiscal Report Card 5 minutes AR, AP, Inventory Revenue, COGS,

Operating Expensesand Profit

Up to 5 NAICS Codes

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Two Free ReportsIndustry

Comparable Report Up to 5 NAICS Codes

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What will be your takeawaysfrom this webinar?

Poll Question #5

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Thank you.

Email:[email protected]

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Further info fromFiscal Checkup?

Poll Question #6

benchmarking for success - amazon web services...forecasting cash after operations (lin e 14): 2016...

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