Vistage KPI Presentation - Karen Chin
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Transcript of Vistage KPI Presentation - Karen Chin
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KPI’s Levers for Your
Business
Karen ChinB2B CFO®
January 27, 2009
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My Background
30+ years in finance and accounting
• 20+ with KPMG• 15+ as Controller and/or CFO
Core competencies
• Accounting management• Financial analysis• Forecasting• Cash flow management• Budgeting• Advanced technology applications and data mining
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Topics
Evolution of a business
Evaluating the financial performance• Key Performance
Indicators
Next steps
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Evolution
Why start a business?
• Freedom to “run the show”• Innovative product• Provide superior service• More income
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Entrepreneurs are “Finders”
• Live in the future; pull others into the future
• High ethical and moral business core values
• Creative, visionary, innovator, dreamer
• Relationship builder
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How Does It Start?
Building an Infrastructure
EmployeesVendorsOutside contractors
Computer hardware and softwareMachinery and equipment
BankersAccountantsAttorneys
Operating procedures and processes
Lenders or leasing companiesOffice space or buildings
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Infrastructure Creation
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Owner’s Activities
• Building relationships with customers
• Creating relationships with vendors
• Delegating tasks to employees or associates
• Causing sales and cash to come into the company
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Business Grows
High level of customer service
Short cash collection cycles
Few customer complaints
Low overhead
Personal sacrifice by the Finder
As a result of Infrastructure Creation is Infrastructure Peak
Company runs “lean and mean”
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Infrastructure Peak
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A Shift in Perspective
“I should have a raise”
“We need more people so
we can take time off”
“We need a better
building”
“I need a new
car/house/vacation…”
“We should buy more
equipment or inventory
A result of running lean is burn-out of owner and employees
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Result of Shift
During infrastructure peak less thought is given to the need of the customer and “lean and mean” is no longer the mantra of the company.
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Outgrowth of Infrastructure
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Symptoms of Infrastructure Outgrowth
• Employees – higher turnover, increased theft of time, money and inventory, increased cost of benefits and training
• Cash – receivables increases, cash shortages, increased dead inventory, owner lends money to cover overhead
• Vendors – delay deliveries, relationships decline, time is spent finding new vendors
• Customers – complaints increase, orders decrease, problems increase
• Productivity – quality decreases, inaccurate information, more meetings, equipment downtime
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The Result?The Danger Zone
The Danger Zone is created when the cash needs of your company far
exceed the cash available to meet those needs
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Owner’s New Activities
• Analyzing cash flow• Meeting with bankers and
lenders, attorneys and accountants
• Deciding which bills can be paid
• Hiring or firing staff• Writing checks
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“Unofficial Organization Chart”
• Finders – future thinkers
• Minders – historical view
• Grinders – live for today
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The Danger Zone
• During this time, the Finder’s time shifts toward being a Minder
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Potential Outcome• Loss of current and future customers• Damaged business relationships• Lost enthusiasm or
energy of the Finder• Damaged
relationships with family members
• Death of the dream of the founder
• Death of the company
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Escaping The Danger Zone
• Find sales with good margins• Leave Minding activities to others• Sales or cash? – let others find the
cash, finders need to generate sales
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Owner Must Returnto Finding• Stop trying to solve all
the problems• Rely on others for
Minding– Find someone who is
good at it– Bring in someone Finder
can trust• Return the focus to
finding new customers• Refocus on product and
market factors
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Let the Minder Find Cash
• Cash might be tied up in A/R, Inventory, fixed assets
• Re-negotiate credit facilities based on:– Clean and timely financial statements– Acceptable key ratios– Evidence of improving cash flow
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Understanding the Minder’s World
Key Performance Indicators
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It’s All RelativeWhere are you now?
Where do you want to be?
Where are others?
Where were you?
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Current Ratio
01234567 6.7
1.75 2.39 3.041.74 2.37 2.04 2.52
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Total Current Assets ÷ Total Current Liabilities
Generally, this metric measures the overall liquidity position of a company. Watch for big decreases in this number over time.
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Quick Ratio
00.5
11.5
22.5
3 2.79
1.5 1.44
2.87
1.692.27
1.561.16
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(Cash + Accounts Receivable) ÷ Total Current Liabilities
Another good indicator of liquidity. Use only collectible Accounts Receivable. Companies with significant Inventory and/or Prepaid Expenses will see a bigger swing in this number compared to the Current Ratio
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Debt to Equity
01234567
0.341.62
1.13
6.45
1.25 1.64 1.282.83
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Total Liabilities÷ Total Equity (or Net Worth)
Leverage ratio that indicates the composition of a company’s total capitalization. Generally, creditors perfer a lower ration to decrease financial risk while investors prefer a higher ratio to realize the return benefits of financial leverage.
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Return on Sales
-30.00%-20.00%-10.00%
0.00%10.00%20.00%30.00% 23.49%
4.01%6.27%6.04%12.36%
-30.00%
7.04%2.54%
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Net Profit before taxes ÷ Sales
How much profit is the company generating for every dollar it sells? Track it carefully over time and against industry competitors.
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Return on Assets
-20.0%0.0%
20.0%40.0%60.0%
33.6%
3.8% 1.3%
50.0%
-3.4%-15.6%
10.6%1.3%
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Net Income ÷ Total Assets
How many cents of profit each dollar of asset is producing. Businesses with high capital equipment will generally produce less.
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A/R Turnover and A/R Days
Accounts Receivable Days0
20406080
79.2
17.9128.7
44.97
25.98
49.9240.49
31.98
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A/R Turnover = Net Credit Sales ÷ Average Accounts Receivable
Both ratios compare sales and accounts receivable. Higher turnover is better; lower A/R Days is better
A/R Days = (Accounts Receivable ÷ Sales) * 365
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Inventory Turnover and Inventory Days
Inventory Days05
10152025
1.48
21.03
2.75 2.79
10.82
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Inventory Turnover = Net Sales ÷ Inventory
Both ratios compare sales and inventory . Higher turnover is better; lower A/R Days is better
Inventory Days = (Inventory ÷ Sales) * 365
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Accounts Payable Days
Accounts Payable Days0
1020304050
26.934.54
17.11
4.99
22.05
46.4
32.09
4.72
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How timely does the company meet is payment obligations? Lower is normally better
A/P Days = (Accounts Payable ÷ Cost of Goods Sold) * 365
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Profit MarginGross Profit Margin
0.00%20.00%40.00%60.00%80.00%
100.00%
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Net Profit Margin
-30.00%-20.00%-10.00%
0.00%10.00%20.00%30.00%
-30.00%
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Are You a Finder?
Do You Spend Too Much Time “Minding”?
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Minder’s ActivitiesEvaluate
ratios over time
Compare ratios to industry
Forecast Cash Flow
Prepare budget and tie incentives
to meeting or exceeding budget
Develop dashboard to enable quick
response to changes in market
condition
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Escape The Danger Zone
Someone is spending time with your current and future customer. If not you, it will be your competition.
Go find new customers, open new markets, dream and have some fun!