The secret sauce for your
decision-making process:
accounting
Amy Vetter
Global Vice-President, Education | US Head of Accounting, Xero
eRYT200 & owner of Drishtiq Yoga
Find us on Twitter &
Instagram
@Xero | @AmyVetterCPA | @DrishtiqYoga
What is an Accountant?
Someone who solves a problem you didn’t know you had, in
a way you don’t understand
ARNOLD AND BETSY CLARK
ESTATE PLANNING
Step 4.
Upon Subsequent Death of Betsy
Betsy’s Trust
$5,600,000
+
Family Trust
$2,00,000
$1,000,000
Exempt Trust
for C1
$2,000,000
$1,000,000
IRS
Personal residence:
$2,000,000
IRA: $90,000
Arnold’s IRA: $1,400,000
+
$800,000
$850,000
Marital Trust
$1,700,000
$1,000,000
$1,000,000
Exempt Trust
for C2
$2,000,000
C1 and C2 will each receive ½ of both IRAs
Non-Exempt
Trust
for C1
$1,650,000
$800,000
$850,000
Non-Exempt
Trust
for C2
$1,650,000
The
Elevator
Conversation
Your business journey
Understanding
what your
business will need
Financial statements
can tell you
Decoding
the financials
Learning the lingo
Evaluating the
business
Why cash flows don’t
necessarily equal
profits
Are you ready to
take your business
to the next level?
Determining whether
to expand or add a
new service / product
line
Stage 1
Understanding what the
business will need
Accounting refresher
Understanding key terminology
Terminology
Accounting period
Fiscal year
• Can be month, quarter,
• Calendar year
or year
• Can be in 4-week
intervals
(13 periods per year)
• Ends when business
activities have reached
lowest point
Accounting methods
Cash
Accrual
• Revenue and expenses
• Revenue is recognized
recognized when
money is paid or
received
when work is completed
• Expenses are
recognized when costs
are incurred
The income statement
Income
-
Expenses
=
Profit
Basic terminology
Income
Expenses
• Class pass sales
• Monthly electricity, phone, internet
• Service sales
• Product sales
bills
• Payments to teachers | stylists |
therapists
• NOT money received from
proceeds of a loan
• Credit card processing fees
• NOT money invested in a new
heater | hair dryer
What you can see in MINDBODY and what you can’t
What can you see in MINDBODY?
What’s missing?
• What you sold and for how much
• Expenses
• Which classes | services are most
• Value of the business assets
popular
• Cash drawer status
• Which customers spend the most
• Profitability
• What you currently owe your
vendors
The balance sheet
The most important but least understood financial statement
Assets
-
Liability
=
Owner’s Equity
Assets
• Things of value owned by the
business
• Current assets and fixed assets
• Have a future value
• The more, the better!
Liabilities
• Amount the business owes for credit
cards
• Amounts owed for Vendor Bills
• Payroll liabilities
• Represent a future obligation
• Gift cards
• Inventory
• Staff’s accrued vacation
Your turn:
asset or liability?
• Outstanding bank loan
• Pilates reformers
• Damaged inventory
• New heater
• Heater repair
• New sofa for the waiting room
Your turn:
expense or
asset?
• Products to sell
• Clothes for personal use
• Laundry service for the linens
Owner’s equity
= value of the company = assets - liabilities
Chart of accounts
• List of all categories used to
record business
transactions organized by
account type (i.e. Asset,
Liability, Equity, Income,
Expense)
• Vary according to industry
Stage 2
Decoding the financials
How is it possible to make a profit
but not have cash?
• Depreciation
• Amortization
Non-cash expenses still affect
net income
• You can be showing a loss but still have
positive cash flow (eg high depreciation
and amortization)
• You can be showing a profit but not
have enough cash (eg heavy investment
in development or fixed assets)
What to include and how to
report it
•
Don’t include personal information
•
Report assets and liabilities separately
from income and expenses
•
Cash receipts and cash payments
should be reported according to their
nature
Strong & Steady Yoga
Income Statement - Year 1
Income:
Loan from bank for heater
Membership receipts
Retail sales
Total income
$15,000
$15,000
$40,000
$40,000
$5,000
$5,000
$60,000
$60,000
Expenses:
Heater
Business license
Liability insurance
POS register
iPad for customer sign-ins
Apartment rent
Groceries
Meals out
Clothes
Apartment electricity
Movies, entertainment
Health insurance
Home phone
Mobile phone
Studio electricity
Heater repairs and maintenance
Loan payment for heater
Total expenses
$25,000
$1,800
$3,700
$1,100
$800
$8,200
$25,000
$1,100
$200
$780
$800
$2,600
$420
$650
$5,800
$950
$4,740
$61,140
Profit:
$(1,140)
Your turn:
What story is
behind
this report?
Strong & Steady Yoga
Income Statement - Year 1
Income:
Loan from bank for heater
Membership receipts
Retail sales
Total income
$15,000 DEBT
$40,000 REVENUE
$5,000 REVENUE
$60,000
Expenses:
Heater
Business license
Liability insurance
POS register
iPad for customer sign-ins
Apartment rent
Groceries
Meals out
Clothes
Apartment electricity
Movies, entertainment
Health insurance
Home phone
Mobile phone
Studio electricity
Heater repairs and maintenance
Loan payment for heater
Total expenses
$25,000
$1,800
$3,700
$1,100
$800
$8,200
$25,000
$1,100
$200
$780
$800
$2,600
$420
$650
$5,800
$950
$4,740
$61,140
Profit:
$(1,140)
ASSET
EXPENSE
EXPENSE
ASSET
ASSET
PERSONAL
PERSONAL
PERSONAL
PERSONAL
PERSONAL
PERSONAL
PERSONAL
PERSONAL
EXPENSE
EXPENSE
EXPENSE
DEBT PAYMENT
Strong & Steady Yoga
Income Statement - Year 1
Income:
Membership receipts
Retail sales
Total income
$40,000
$5,000
$45,000
Expenses:
Business license
Liability insurance
Mobile phone
Studio electricity
Heater repairs and maintenance
Total expenses
$1,800
$3,700
$650
$5,800
$950
$12,900
Profit:
$32,100
The real
story
Stage 3
Evaluating the business
What is happening today?
What may happen tomorrow?
What financial statements
don’t tell us
•
The current value of assets
•
How much the business would be worth if it were
sold
•
The value of the human capital in the company
Horizontal analysis
Period-to-period, or year-to-year comparison
% Change = Comparative Period - Base Period
Base Period
Critical Success Factors & KPI’s
• Key Performance Indicators (KPI’s) are used as a measurement tool to
provide information as to how well a process is performing.
• If the measures indicate that a process is falling short of specific goals, its
important to determine why
You can't make decisions by the
heart you have to make decisions by the
numbers
Your turn: Name the
CSF & KPI for each
•
Offering a 200 hour apprentice program
•
Classes | services offered on regular
schedule
•
A Groupon offer
•
Automated billing for unlimited classes |
services every month
•
Pay per visit
The cash gap
Avoid going under while showing a
profit
What is a cash gap?
•
If you need to pay suppliers before your
customers pay you
• You have to permanently tie up funds
• Opportunity costs: you can’t fund other
projects
Cash flow impact of decisions
•
Any company has limited cash
resources
•
Make wise choices about committing
cash resources
•
Once you’ve made a choice, you’ve
eliminated other options because cash is
committed
25 days + 40 days
Average days in inventory
Average age of
accounts payable
20 days
+
Average age of accounts receivable
CASH GAP
45 days
A fitness store sold a Pilates machine during December 2016 on a
financing plan with a customer for $2,500.
They purchased the machine during the 6 months prior to the sale for
$1,250.
Accounting View 2016:
Cash Flow View 2016:
Sales Revenue:
$2,500
Cash Inflow:
$
Less: Cost
<1,250>
Less: Cash Outflow
<1,250>
Net Profit:
$1,250
Net Cash Flow:
$<1,250>
0
Options for reducing the cash
gap
What can you do to reduce
the time it takes to collect cash?
•
Get paid up front
• Accept credit cards and automate billing
• Manage receivables
• Establish credit policies and assess finance
charges
• Follow up: send invoice reminders, statements
Manage inventory levels
Manage your obligations
•
Know how much you owe
• Pay on time to limit late fees
• Consider specialized apps to help
manage and pay bills
How to monitor cash fluctuations
Stage 4
Are you ready to take your
business to the next level?
My story:
Deciding whether or
not to expand
•
Space next door became available
•
Customers wanted unheated room
•
New space → larger retail area
• BUT this would require $$$ to invest
Create your financial intention
•
Where do you
see your business
in one, five, ten
years?
•
What are your
financial goals?
•
Planning and
capital budgeting
•
How do you plan to get there?
•
How will you finance growth?
The results of capital budgeting
decisions continue for many years
•
Requires a sales forecast that
covers the asset’s useful life
•
Capital budgeting defines the firm’s
strategic objectives
Capital budgeting process
Project
identification and
definition
Evaluation and
selection
Monitoring and
review
Four ways to finance capital
expenditures
Owners invest
their own funds
The company
brings in additional
investors
The business
borrows money
Retain earnings
and reinvest them
Creating a Budget
YOUR TURN: Write down 3 financial
goals
EXAMPLES
•
Increase Sales by 10%
•
Increase Customer
Satisfaction
•
Open a new location
•
Add more staff
Better together
Questions
Continue the conversation at
mindbody-one.com
#BOLDConference