Budgeting in Tough Times: A Key Business Tool Moderator: Arthur Sanders, CPA Senior Partner: Israeloff, Trattner

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Budgeting in Tough TimesA Key Business
ToolModerator Arthur Sanders, CPASenior
Partner Israeloff, Trattner Co.
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Cash Flow Budgets

• How to Use this Effective Planning Tool
• Presented by
• Michael Buoncore, CPA CFO
• Posillico Civil, Inc.

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• Cash is KING

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Operating vs. Cash Flow BudgetsWhats the
difference?

• Operating Budget A detailed projection of all
  estimated income and expenses based on forecasted
  sales for a given period. The operating budget
  focuses only on the components of the Income
  Statement.
• Cash Flow Budget A detailed estimate of the
  timing of cash inflows and outflows over a given
  period. The cash flow budget focuses on the
  sources and uses of cash, which includes
  components of both the Income Statement and
  Balance Sheet.

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Cash Flow BudgetsStatement of Cash Flows

• Significant Sources of Cash

• Significant Uses of Cash

• Cash expenses
• Payment of accounts payable
• Loan repayments
• Purchases of FFE
• Distributions / dividends
• Purchases of inventory/raw materials

• Cash sales
• Collection of accounts receivable
• Loan proceeds
• Sales of FFE
• Capital contributions

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Cash Flow BudgetsItems to Improve Collections

• Be selective in choosing customers (KYC to CYA)
• Use credit application
• DB report analysis
• References (new, established and lost)
• Better Business Bureau
• Know your customers accounts payable process
• Flowchart their payment process
• Payment cutoff dates
• Personnel in process
• Accept credit/debit cards
• Negotiate discounts for faster payment

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Cash Flow BudgetsItems to Improve Payments

• Offer discounts for early payment
• Set specific day(s) that you cut checks
• Keep the process in line with industry benchmarks
• Eliminate late charges penalties
• Dont pay vendors early due to personal
  relationships
• Wherever possible, match vendor payments with
  related cash collections

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Cash Flow BudgetsThe Pains of Growth
Week Month 1 Month 1 Month 1 Month 1 Month 2 Month 2 Month 2 Month 2 Month 3 Month 3 Month 3 Month 3 Month 4 Month 4 Month 4 Month 4
Number Costs Billings Cash in Net cash Costs Billings Cash in Net cash Costs Billings Cash in Net cash Costs Billings Cash in Net cash
1 (1,350) (1,350) (1,350) (1,350) (1,350) (1,350) (1,350) (1,350)
2 (1,350) (1,350) (1,350) (1,350) (1,350) (1,350) (1,350) - (1,350)
3 (1,350) (1,350) (1,350) (1,350) (1,350) (1,350) (1,350) (1,350)
4 (1,350) 7,715 (1,350) (1,350) 7,715 (1,350) (1,350) 7,715 7,715 6,365 (1,350) 7,715 7,715 6,365
Monthly (5,400) 7,715 - (5,400) (5,400) 7,715 - (5,400) (5,400) 7,715 7,715 2,315 (5,400) 7,715 7,715 2,315
Cumulative   (5,400)   (10,800)   (8,485)   (6,170)
                 
    Mth 1 YTD     Mth 2 YTD     Mth 3 YTD     Mth 4 YTD  
Revenue   7,715 7,715     7,715 15,430     7,715 23,145     7,715 30,860  
Cost of sales   5,400 5,400     5,400 10,800     5,400 16,200     5,400 21,600  
Gross profit   2,315 2,315     2,315 4,630     2,315 6,945     2,315 9,260  
Overhead   675 675     675 1,350     675 2,025     675 2,700  
Profit   1,640 1,640     1,640 3,280     1,640 4,920     1,640 6,560  
    21                            

Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days Assumptions Salary 1,000/wk Benefits 350/wk (35) Profit Margin 30 Overhead Costs 675/month Client pays in 60 days
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Cash Flow BudgetsHow Does the Bank Fit In?

• Your bank is not a vendor, but an critical
  partner in the cash flow equation.
• Debt options
• Line of credit (fund working capital)
• Fixed rate term debt (long term purchases)
• Variable rate term debt (long term purchases)
• Leases

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Cash Flow BudgetsMeasurement Tools

• Every company is leveraged
• A/P, Accrued expenses, Formal debt, commitments
• Working Capital (current assets current
  liabilities)
• Current Ratio (current assets/current
  liabilities)
• Acid Test (Liquid) Ratio (Cash, A/R
  investments/current liabilities)
• Days Cash (cash/daily cash expenses)
• Days Sales Outstanding (A/R / daily sales)
• Days Payable Outstanding (A/P / daily expenses)

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OPERATING BUDGETS

• IT IS HOW YOUR BUSINESS RUNS
• Presented by Marc P Palker, CMA
• Managing Director-Madison Davis Professional
  Services, LLC

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HOW IMPORTANT ARE BUDGETS?

• They make you think ahead

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HOW IMPORTANT ARE BUDGETS?

• They make you think ahead
• They make you think about how your business runs

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HOW IMPORTANT ARE BUDGETS?

• They make you think ahead
• They make you think about how your business runs
• They engage all levels of management

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HOW IMPORTANT ARE BUDGETS?

• They make you think ahead
• They make you think about how your business runs
• They engage all levels of management
• They provide measurements to compare results

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HOW IMPORTANT ARE BUDGETS?

• They make you think ahead
• They make you think about how your business runs
• They engage all levels of management
• They provide measurements to compare results
• They allow for new products, services, and
  divisions to be tracked

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HOW CAN BUDGETS BE ORGANIZED?

• Product

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HOW CAN BUDGETS BE ORGANIZED?

• Product
• Service

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HOW CAN BUDGETS BE ORGANIZED?

• Product
• Service
• Division

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HOW CAN BUDGETS BE ORGANIZED?

• Product
• Service
• Division
• Location (state, region, country)

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HOW CAN BUDGETS BE ORGANIZED?

• Product
• Service
• Division
• Location (state, region, country)
• Sales executives

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HOW CAN BUDGETS BE ORGANIZED?

• Product
• Service
• Division
• Location (state, region, country)
• Sales executives
• Any combination of the above

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How do you want to measure your business?

• Key Performance Indicators
• Total Sales
• Unit Sales
• Gross Margin
• Expense Ratios
• Pretax Income
• Net Income
• Cash Flow
• Non GAAP Measures

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Types of Budgets

• Budgets can be prepared based on the previous
  year or years.

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Types of Budgets

• Budgets can be prepared based on the previous
  year or years.
• Zero based budgeting.

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Types of Budgets

• Budgets can be prepared based on the previous
  year or years.
• Zero based budgeting.
• Rolling budgets.

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Types of Budgets

• Budgets can be prepared based on the previous
  year or years.
• Zero based budgeting.
• Rolling budgets.
• Periodic updating.

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Management Involvement

• The more departments that are involved in the
  budgeting process the better the ownership in
  the process. When results are reported you really
  do not want to hear,
• It is not my budget, its your budget

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Budget Cycle(assumes December 31, year end)

• September 30
• (9 months results)

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Budget Cycle(assumes December 31, year end)

• September 30
• (9 months results)

Templates Distributed
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Budget Cycle(assumes December 31, year end)

• September 30
• (9 months results)

Templates Distributed
Preliminary Budget
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Budget Cycle(assumes December 31, year end)

• September 30
• (9 months results)

Templates Distributed
Preliminary Budget
Revised Budget
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Budget Cycle(assumes December 31, year end)

• September 30
• (9 months results)

Templates Distributed
Preliminary Budget
Revised Budget
Final Budget
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Budget Templates

• When designing budget templates you first must
  decide the level of detail you want.
• Based on that decision, you must provide that
  level of detail in the historical information.
• Information needed to make intricate calculations
  should be programmed and locked in the
  spreadsheets.

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Analysis

• Why do I need to look at the comparison to the
  previous year?

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Analysis

• Why do I need to look at the comparison to the
  previous year?
• What is the relationship to that comparison and
  the comparison to the budget?

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Analysis

• Why do I need to look at the comparison to the
  previous year?
• What is the relationship to that comparison and
  the comparison to the budget?
• Who should these reports be distributed to?

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Analysis

• Why do I need to look at the comparison to the
  previous year?
• What is the relationship to that comparison and
  the comparison to the budget?
• Who should these reports be distributed to?
• Should meetings be held in conjunction with the
  issuance of these reports?

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Monitoring Your Business

• Presented by
• Manny Cafiero, CPA CFO
• Scales Industrial Technologies, Inc.

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Understanding Your Business
Understanding Your Changing Environment
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Questions You Need To Answer

1. What issues keep you up at night?
2. Does your business have stated goals and
   objectives?
3. Do you have effective leaders and management?
4. Are people willing to change? (especially
   leaders)
5. Are there pressures on the business? (Ex Make
   more money)

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Is Your Company Focus Still Relevant?
What New Factors Should We Consider?

• External
• Internal

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Developing Your Critical Success Factors(CSFs)
CSFs are what your business MUST get right to be
successful
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CSFs cover Financial Non-Financial Areas

• Cash Levels
• Management Succession
• Customer Satisfaction
• Employee Retention
• A/R Collection
• Inventory Turns
• Profitability
• Billing per Employee

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Monitoring

• How do you know if you are successful and meeting
  our objectives?
• You must have Key Performance Indicators (KPIs)
  to measure your progress.
• KPIs are
• Financial Non-Financial
• Have little chance of producing erroneous results
• Timely and easy to obtain

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Areas to Monitor

• Cash
• Daily Cash Level
• Cash Projections
• A/R Aging DSO
• Inventory Levels Turns
• A/P Terms

Cash Is King
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Revenue

• Sales
• Backlog Reports
• Bookings
• Billings
• Service operations
• Hours Billed vs. Hours Paid
• Open Calls
• Covered Calls
• Repeat Calls
• Over Time Reports

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Financial Statements

• Comparisons
• Year to Year
• As a of Sales
• Actual to Budget
• Ratios
• Gross Profit Analysis
• Gross Profit Divided by Employment
• Contribution Margins
• Profit as of Sales

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YTD
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Non-Financial Areas

• Customer Satisfaction
• Warrantees
• Repeat Calls
• Lost Sales
• Vendor Relationships
• Employee Communication
• Employee Satisfaction
• Employee Rewards vs. Company Goals

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Actions
What Do the Indicators Mean

• Some indicators require a limited action
• Some are more predictive in nature
• Some require immediate action
• Some are life threatening

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Focus Its a Balance
Profits
Customer Service

• Gross Profit
• Inventory Turns
• Labor Efficiency
• Better Purchasing
• Maximize Sales Price
• Collections

• Quality
• Response Time
• Availability of Parts and Labor
• Technical Ability
• Exceed Expectations