budgets, forecasts, and cashflow presentation
DESCRIPTION
TRANSCRIPT
![Page 1: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/1.jpg)
Budgets, Forecasts, and Cashflow
“A budget tells us what we can’t afford, but doesn’t keep us from
buying it!”
![Page 2: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/2.jpg)
By the End of This Meeting:
• Understand the difference between budgets and forecasts
• Understand your role (CEO) in the financial management process
• Understand:– Your business income needs– Forecasting annualized cash flow– Your retirement needs– Forecasting periodic cash flow
• Know your next steps
![Page 3: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/3.jpg)
Budgets Versus ForecastsBudgets Forecasts
Create: Annually Annually
Update: Quarterly Weekly / Monthly
Purpose: Tells you where you want to go
Tells you where you are at and where you will likely go given your current heading
Best Used: Goal setting, incentives
Managing day to day operations
Who: Collaborative company / department / team effort
Limited group to allow for faster turn around times
Importance in Decision Making Less More
![Page 4: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/4.jpg)
Budget Versus Forecast
The “Budget”
The “Forecast”
![Page 5: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/5.jpg)
Budgets Versus Forecasts
Budgets Forecasts
Sales: Quarterly Weekly / Monthly
Raw Materials / COGS: Quarterly Weekly / Monthly
Labor: Quarterly Monthly
Fixed Expenses (e.g. Rent): Annually Semi-Annually
Variable – Predictable Cost: Quarterly Monthly / Quarterly
Variable – Unpredictable Cost: Quarterly Weekly / Monthly
Asset Purchases / Disposals: Quarterly Quarterly
Debt Service: Quarterly Quarterly
Equity Transactions: Quarterly Quarterly
Update Frequency
![Page 6: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/6.jpg)
CEO’s Role
What: How:Ensure timely and accurate accounting and reporting systems.
• Set meeting with finance team to review balance sheet, p&l 15 days after month close. Periodically ask to see reconciliations to each balance sheet account (e.g. how did this number get here?)
• Require weekly cash reports produced by Monday 9:00 am.
Identify the right numbers / key indicators to watch.
• Profit – sales, gross margin, EBITDA• Liquidity – debt / equity, quick ratio, working capital• Operations – 3 – 5 KPIs
Know how to read the key financial documents.
• Balance sheet – a snap shot in time• P&L – what happened over a period of time• Cash flow – what happened to cash between two periods in time
Manage cash flow. • Don’t confuse sales and profit with cashUse financial information to forecast the future.
• See previous slides
“In entrepreneurial companies, CEOs generally achieve success for reasons other than finance. Failure to understand the numbers can kill your company.”
![Page 7: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/7.jpg)
Why Do You Need To Make More?
1. I want to provide a better lifestyle for my family today? (e.g. more vacations, college, new car)
2. I want to retire comfortably?3. I want to leave something for my kids /
legacy?4. I just want to keep score (Donald Trump)?
![Page 8: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/8.jpg)
What Do I Need to Make? - 1Sales Budget Worksheet
Monthly Household PaymentsPrincipal Home - Total Payment 2,200.00$ Auto Loans 1,200.00$ Credit Card Payments 1,200.00$ Child College / Education / Retirement 5,150.00$ Other Personal Debt 300.00$
Total Monthly Payments 10,050.00$ Annualized 120,600.00$
Gross Income Requirements - Personal 402,000.00$ Annualized / .3
Operating Company Ownership % 25%
Company Income Required - Pre Debt, No Owner Salary 1,608,000.00$
Company DebtMonthly Principle Payments - Long Term Debt 6,500.00$ Monthly Lines of Credit Payments 1,200.00$
Total Monthly Payments 7,700.00$ Annualized 92,400.00$
Total Income Requirement 1,700,400.00$
Total Sales - Prior Year 3,000,000.00$ Net Income - Prior Year 400,000.00$ Offi cer Salaries 600,000.00$
Extrapolated Net Income - Including Offi cers 1,000,000.00$ Extrapolated Profit Margin 33.3%
Increased Sales Required to Produce Necessary Profit 2,101,200.00$ Growth Required 70.0%
![Page 9: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/9.jpg)
Exercise 1 – What Do I Need to Make?
• Take 10 minutes to complete exercise – ask BGW team members for help if you need to.
![Page 10: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/10.jpg)
Annualized Cash Flow
![Page 11: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/11.jpg)
Annualized Cash FlowIt’s difficult to change operating results over a long time period – therefore
forecasting cash flow can be simple.
Study of operating performance of over 10,000 public companies over a period of 10 years demonstrates convergence to a “standard.” In addition, the relationship
to operating performance and asset growth stayed constant.
![Page 12: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/12.jpg)
Annualized Cash FlowInputs Where / How
Net Income % • Use historic averages from profit and loss statements.
Sales Growth % • Use sales budgets adjusted for historic performance.
Opening Balance Sheet • Cash• Operating Assets (e.g. A/R, Fixed Assets)• Debt Service Requirements• Planned Equity Transactions (draws)
![Page 13: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/13.jpg)
Annualized Cash Flow - Example
Sales Growth – 70% - Negatives are Use of CashINPUTSCash - End of Last Year 150,000.00$ Tangible Assets - Last Year 275,000.00$ Planned Owner Draws - This Year 1,008,000.00$
Cash ForecastBeginning Cash 150,000.00$
Plus Net Income 1,700,400.00$ Less Owner Salaries (600,000.00)$ Less Asset Growth (192,610.00)$ Less Debt Service (92,400.00)$ Less Owner Draws (1,008,000.00)$
Ending Cash (42,610.00)$
From previous exercise
PY Asset * Growth Rate 70%
D’oh!
![Page 14: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/14.jpg)
Exercise 2 – Annualized Cash Flow
• Take 10 minutes to complete exercise – ask BGW team members for help if you need to.
![Page 15: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/15.jpg)
My Retirement Needs
• Inputs (Conservative Method – Net of Inflation)– Income Requirements (previous exercise)– Current Retirement Savings– Desired Legacy Amounts– Planned Retirement
![Page 16: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/16.jpg)
My Retirement Needs4% - Net of Inflation
Annualized Income 402,000.00$ Income in Retirement 261,300.00$ 65% of AnnualizedRetire In 15 YearsAt Age 63EOL 95Retirement Years 32
My Income Needs 8,361,600.00$
Existing Retirement 400,000.00$ Investments + PropertyDouble In 18 Years 72 / 4%Future Value 733,333.33$ Existing + Growth
Current Contributions 35,000.00$ AnnuallyAnnualized 525,000.00$ Future Value 787,500.00$
Total Planned 1,520,833.33$
GAP (6,840,766.67)$ Gap to Close w/Biz Value
![Page 17: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/17.jpg)
Exercise 3 – Retirement Needs
• Take 10 minutes to complete exercise – ask BGW team members for help if you need to.
![Page 18: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/18.jpg)
Business Value – Close the Gap
• General Rule of Thumb:– COGS w/Physical Materials - .4 - .7 X Sales (lower
multiple of net is lower, higher multiple if net is higher)– Services - .7 - 1 (lower multiple of short term contracts,
higher multiple of long term contracts)– Technology – 1 – 2 X Sales
• Take Today’s Value Versus GAP value to understand required growth
• EX: $5m value today, gap $2m. Gap / Multiple = required sales growth.
![Page 19: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/19.jpg)
Periodic Cash Flow
• Annualized data tells you the annual picture, but doesn’t tell you “when” or account for seasonality.
• Start small, then increase duration (e.g. a payroll cycle to 90 days).
![Page 20: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/20.jpg)
Periodic Cash Flow
Week 1 Week 2 Week 3 Week 4
Sources:
Beg Cash Cash from the end of the prior week.
Collections Use A/R turns or actual A/R to project.
Uses:
Payroll / Labor Use historic / planned data.
A/P Use actual A/P.
Rent Use actual – if not in A/P.
Debt Payments Use actual – if not in A/P.
Equity (Draws) Use historic / planned data.
Sources Less Uses
Use this number as the beginning point for the next week.
Example – Short Term – Each Week
![Page 21: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/21.jpg)
Periodic Cash Flow
Month 1 Month 2 Month 3
Sources:
Beg Cash Cash from the end of the prior month.
Collections Use A/R turns or actual A/R to project month 1 and 2. Use Month 1 (or prior month) sales to predict Month 3.
Uses:
Payroll / Labor Use historic / planned data.
A/P Use actual A/P for Month 1, 2. Use historic operating margin for month 3.
Rent Use actual – if not in A/P for month 1. Use historic / planned for month 2, 3.
Debt Payments Use actual – if not in A/P for month 1. Use historic /planned for month 2, 3.
Equity (Draws) Use historic / planned data.
Sources Less Uses Use this number as the beginning point for the next week.
Example – Long Term – Each Week
![Page 22: Budgets, forecasts, and cashflow presentation](https://reader036.vdocument.in/reader036/viewer/2022081602/546ebab3af795958298b595f/html5/thumbnails/22.jpg)
Tools / Next Steps
• Diagnostic Checklist• BGW Dashboard• Steroid Dashboard• Sustainable Growth Rate• Trailing 12 Months• Daily Cash Report• Z-Score• Executive Summary