Download The 5 C`s of POWERFUL FINANCIAL MANAGEMENT

The 5 C’s of
POWERFUL FINANCIAL
MANAGEMENT
An Executive Briefing on Backroom Management’s
techniques for driving a company forward
Copyright 2010, Backroom Management Services LLC, All rights reserved
No part of this book may be used or reproduced in any manner whatsoever without written permission
except in the case of brief quotations embodied in articles and reviews.
9033 E Easter Place • Centennial, CO 80112 • 303-221-0823 • [email protected]
The Five C’s of
POWERFUL FINANCIAL MANAGEMENT
About The Author:
Jeffery Prager has been a CPA since 1974. Beside founding and selling his own successful
practice, he is also a well-known and respected entrepreneur. He was CEO and co-owner
of Strauss Homes of Colorado, which he built from an idea to a $26 million a year home
builder, while at the same time serving as CFO of Gateway American Properties, a $100
million a year land development company.
Jeff’s business philosophy is simple but in many ways contrary to conventional wisdom.
He believes that your real-life goals drive the ability to earn the money. This is the core,
the true root of success.
The majority of business owners confuse profitability with success. A business owner must
be both an employee and investor in his business, by first receiving a salary for work
served and then creating a return on his investment (ROI.) The ROI of a business comes,
not from the salary the business pays the owner; rather it evolves from the value he creates within that business
Who is Backroom Management Services?
Backroom Management was founded to provide education, support and software to the
construction and professional services industries to increase revenue, profits and cash
flow. In working with closely held businesses, we realized that they did not have the financial information to generate the wealth they expected from their businesses. In response
to this need, we formed Backroom Management and built a web-based lead-to-cash
management system that helps manage cash flow from the time a lead is created until
the time you put cash in your pocket. Backroom Accounting™ was designed by an accountant, not a programmer. It is a fully integrated system with multi user variable levels
of access that allows the entire team to collect information around the business benchmarks. It has several capabilities, such as: G/L, Job Cost, Time Billing, Budgeting, Financial
Analytics, Break Even Calculators, Financial Statements, and several detailed reports.
To run a company effectively in this economic environment, you need a financial and
management system that tracks both leading and lagging indicators. By in large, all accounting systems are focused on lagging indicators. This means that your competitors
(those NOT using the Backroom Management approach) are trying to manage and grow
their businesses using rear-view mirrors.
When we examine the progression of accounting systems from their inception during the
14th Century, accounting hasn’t really changed. As we took the first steps in computer
automation, bookkeepers became data entry specialists and CPA’s have become compli-
9033 E Easter Place • Centennial, CO 80112 • 303-221-0823 • [email protected]
The Five C’s of
POWERFUL FINANCIAL MANAGEMENT
ance masters. As accounting systems have developed, convergence has taken over and
we are left with small business accounting systems that are so ineffective, almost all accountants have had to become Pros in order to straighten out their clients’ books.
The Next Generation of Financial Management
In working with closely held businesses, we realized that our clients’ financial information
was insufficient to help them generate the wealth they expected from their businesses.
In response to this critical need, we formed Backroom Management Services and built
a web-based, easy-to-use lead-to-cash management system that gives them the tools
required to manage cash flow from the creation of a lead through the time they put cash
in their pocket. We provide the tools to the business community to allow them to go
through 5 C’s of powerful financial management to help them create a highly valuable
business. Our typical client has put in a lot of time, money and energy into their business.
Now more than ever, business owners are looking for results-oriented business guidance
from people they trust. As more and more owners seek to manage their business better,
position themselves for growth, get control of their costs and operations, the need for
Backroom Management has never been greater.
The 5 C’s:
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Create the benchmarks, or key performance indicators, that measure the progress of business. Remember what Peter Drucker said, “What gets
measured gets managed.”
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Collect information in a meaningful manner that tracks progress towards
the company goals. This information must encompass both financial and
non-financial information.
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Compile: Data is just data until it is turned into useful information by
compiling it into effective management reports.
•
Correct: Take corrective action when required to achieve the
company goals.
Compare: Compare your results and findings to the benchmarks
established in the Create Step.
9033 E Easter Place • Centennial, CO 80112 • 303-221-0823 • [email protected]
The Five C’s of
POWERFUL FINANCIAL MANAGEMENT
Creating a Solid Foundation to a Business
Over the years we developed what I call the 8 Pillars of Running a Successful Company.
These pillars are used to build the foundation of a valuable business model. When you
begin to focus on why the information is being collected, it will create powerful insight
into a company’s inner workings.
The 8 Pillars are:
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Purpose: Do you have a clear vision of where you want your company to go?
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Profit: If profit = revenue - costs, do you have a handle on your costs and how you
generate revenue?
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Price: Are your products priced correctly?
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Product: Have you defined the correct products for your market?
•
Place: This includes both where you offer your products and how wide your reach
is. Are you confident that you are reaching everyone you should?
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Promotion: Do you have a strategic marketing plan AND a sales plan? Have you
defined your target audience? Do you have a competitive advantage?
•
Production: Is your production process both efficient and effective?
•
People: Do you have the right people in the right places to support growth and
expansion?
Take a moment here and review the 8 Pillars, then answer each of the following questions:
In how many are you an expert? In how many are you competent? How many can you do
even though you don’t like doing them?
Answer these truthfully. If you are like most business owners you are probably an expert
at one or two of them, competent at perhaps three more. The rest you do grudgingly and
not well. Or worse, you don’t do them at all and merely hope for the best.
9033 E Easter Place • Centennial, CO 80112 • 303-221-0823 • [email protected]
The Five C’s of
POWERFUL FINANCIAL MANAGEMENT
Hope is NOT a strategy for success.
Plug in the 8 P’s Strategies into the cash flow model by applying the 5 C’s:
Financial information is the life blood of business. Backroom Management gives all of
the information needed to run the entire business more efficiently! Help determine your
strategies using The 8 Pillars of Business, then plug the strategies into a cash flow model.
Now we have identified eight areas of concentration for creating benchmarks, collecting
data, compiling reports, comparing progress and correcting the path to success. The first
place to start, creating benchmarks, is to categorizing how the business owner creates
and spends money. Using the Bucket Theory™, you are able to better monitor the inflows
and outflows of everyday business to better make strategic decisions and create better
budgets.
Create your expectations through the use of a business plan and related budgets that
support the business plan. A business plan is based on historical data, the economic environment, demographics, and customer research. Based on your business plan and the
data from which it is created, you can realistically project revenue for a given time period.
Underlying objective of a business is to create a consistent long term positive cash flow.
Collecting the data with a chart of accounts built around the 8 Pillars is as simple as lists,
transactions and reports. Both financial and non-financial data needs to be collected to
develop an accurate picture of what is occurring inside of a business.
•
Financial data – This includes information such as estimates, job costs,
exception reports, and accounting records.
•
Non-financial data – This includes information such as the number of
sales, sales per salesperson, revenue per employee, traffic counts, and
customer profiles.
Compiling the information is done automatically in the system, including the three
basic financial statements:
•
Balance Sheet – shows what a company has, what it owes, and what is left
for the owner(s).
•
Income Statement – tells how much a company is making – profitability.
•
Cash Flow Statement – tells where money comes from and where it goes.
The information gathered is also then compiled into several useful reports. Break even
9033 E Easter Place • Centennial, CO 80112 • 303-221-0823 • [email protected]
The Five C’s of
POWERFUL FINANCIAL MANAGEMENT
Analysis and Profit Planning tools are built into Backroom Accounting. Management
information is compiled into meaningful reports, such as employee efficiency, call to close
conversion rates, cash flow statements, and financial reports. Company and department
budgets are built into for ease in comparing goals with actual results. These are not just
“financials” but powerful tools used in decision making.
Compare the actual data to the expectations generated. Other sources of comparison
include historical data and/or industry comparables. To stimulate and increase profit, a
business must be monitored via comparison to existing benchmarks created during the
first C, Create. Some of the best comparison tools include:
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•
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The Report Card
Financial data analysis – comparing financial statements with
historical statements or industry averages.
Determination of expected break-even points as compared to actual break-
even points.
Ratio analysis - Compute ratios relevant to the business and compare them
to historical data and industry data.
Return on investment (ROI) analysis – Relate various ratios such as
profitability and turnover to return on assets. Return on assets is then
related to financial leverage to determine return on inves™ent.
Review of variance reports to locate “leaks” in the system.
Correct the course of action to achieve the results you desire. Think of a sail boat, in order
to get to your destination, you need to make continual course adjustments. The sooner
you act the less course correction you need to make.
9033 E Easter Place • Centennial, CO 80112 • 303-221-0823 • [email protected]
The Five C’s of
POWERFUL FINANCIAL MANAGEMENT
BACKROOM MANAGEMENT LEAD-TO-CASH MANAGEMENT SYSTEM
Backroom Management is far more than an accounting system. It was designed by a CPA
and business owner, not programmers, using a new and far more powerful approach
to financial management. Rather than focusing on the lagging indicators (standard accounting systems), Backroom Accounting ™ is designed to track everything from lead
generation to cash in the owner’s pocket and every step in between. The foundation of
the Backroom Accounting ™ system are the 5C’s. Tracking begins with the leading indicators and continues by following, “not just the money” but all the indicators in a business.
Some key highlights to the program:
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Complete general ledger package with lead generation tracking, A/R, A/P,
comprehensive management reports
Job cost program templates for costs and billing, profitability, change order
and exception reports to monitor budgets.
Time billing integrates time invoicing with your general ledger, including
COLTAF tracking, important in the legal industry.
Budgeting tools built-in for ease in comparing benchmarks with results.
Break-even Analysis.
Limited access capability to align your entire team with your financial goals.
CRM for ease in tracking marketing dollars and client activity.
Let us provide you with the tools, expertise and people to bridge the gap between your
financial information and the decisions you make.
9033 E Easter Place • Centennial, CO 80112 • 303-221-0823 • [email protected]