You tell the difference between an amateur financial forecast and a professional financial forecast by looking for one key ingredient.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
You can tell an amateur financial forecast when the amateur only forecasts the P&L and doesn’t forecast the balance sheet. Projecting the changes in your balance sheet accounts is the only way to determine accurate cash balances. Which by the way knowing projected cash balances should be one of the main reasons you wanted a forecast in the first place.
Remember, the most successful business owners know their numbers.
After each day most business owners ask the question, did we win or lose today? Did we move forward or backward? Without knowing your break-even point, you will never know at days or weeks end if you are winning or losing.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
Many business owners want to know their break-even point for the very reason of knowing whether they are winning or losing in a day, week or month.
Calculating break-even points is just one of many metrics I can provide the business owner to be able to evaluate the performance and productivity of their business.
And remember, the most successful business owners know their numbers.
There are actually three types of patents. Two types are very common but it’s the third type of patent that is not common that I was able to tell my new client about to help increase the value of his business.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
The most common types of patents are utility patents when one is seeking protection for the use of an invention and a design patent when one is seeking protection for the design of an invention.
My new client is a florist and I introduced him to the 3rd and most unpopular type of patent and that is the plant patent granted for any reproducible plant. He never knew about it.
And remember, the most successful business owners know their numbers.
The most important information needed to properly manage a company in the trades is tracking direct labor hours.
By knowing direct labor hours all types of insightful metrics can be calculated.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
With direct labor hours you can figure out all of your hourly costs, including material labor and overhead costs per hour. You can also calculate labor efficiency metrics. So if you are a business owner in the trades who feels they need more control over their business and really needs to hone in on what their services cost, track direct labor hours.
And remember, the most successful business owners know their numbers.
It’s often said that leaders are ordinary people with extraordinary determination. As leaders, the main challenge that today’s business owners have is keeping themselves inspired, because when the business owner is inspired their employees are inspired.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
Because of the vicissitudes of owning a business it is really difficult for the business owner to stay inspired.
One of the things I have to do with some of my clients to try to keep them inspired is to have them reflect back on the excitement they felt when they first started their business, because it is likely that those fundamental opportunities that they saw then still exist.
And remember, the most successful business owners know their numbers.
If you are looking to buy a franchise, you need to produce a realistic 3 year business and cash flow forecast projection so you have a much better idea of how much start-up operating capital you really need.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
The franchisor will tell you how much money you need and so will other franchisees, but at the end of the day, everybody’s situation is different and the #1 reason why a franchise fails is a lack of startup capital.
The forecast will also be able to tell you how much working capital you will need for multiple what if scenarios. For example, what will happen to cash flow if sales are off 20% from what the franchisor is telling you?
What is the cash required then?
Because remember, the most successful business owners know their numbers.
Let’s face it; if a company is not properly capitalized it is bound to have cash flow problems.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
Most all business owners and entrepreneurs underestimate their cash needs because there are so many contingencies and factors to take into account.
Having a professionally prepared business and cash flow forecast will allow you to know with great certainty how much cash you will need because a professionally prepared business and cash flow forecast will cover the contingencies. Plus you will be able to do a variety of what if scenarios at different levels of sales to cover even more contingencies.
And remember, the most successful business owners know their numbers.
The Cash Conversion Cycle is the time period between the outlay of cash to make a product and the collection of cash from the sale of that product. The objective is for the cash conversion cycle to be shorter than your trade vendor credit terms.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
Put another way, if you convert the production of your product into cash before you pay for the raw material you are going to be in good shape.
Calculating the cash conversion cycle is a quick way to discover the cause of a cash flow problem.
Remember, the most successful business owners know their numbers.
Understanding your gross profit and how to improve it is critical to maximizing profitability. Gross Profit is sales less cost of goods sold and cost of goods sold are all of the costs directly related to your product or service.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
Finding ways to increase your gross profit can have an exponential effect on profitability because your overhead expenses are basically fixed and don’t change much with increases in gross profit.
And remember, the most successful business owners know their numbers.
Most business owners think of “working capital” as the cash needed to operate their business. In the financial world the words working capital means something a little different.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
In the financial world working capital is actually a financial metric. Working capital is defined as current assets less current liabilities and is a measure of a company’s liquidity.
If current liabilities exceed current assets there is a working capital deficiency. Use of this simple metric can identify the reason why a company is making money but has poor cash flow.
Remember, the most successful business owners know their numbers.
