The Green Bay Packers Mentor-Protégé Program. Presented by Larry Rose, CPA/PFS Harbor Wealth Management, LLC

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1 The Green Bay Packers Mentor-Protégé Program Presented by Larry Rose, CPA/PFS Harbor Wealth Management, LLC

2 Takeaways Our lives are immersed in creeping complexity Accounting is no exception. Create reports that provide meaningful, reliable information at a glance Develop a relationship with an unbiased accounting professional Tax Basis Accounting vs. GAAP

3 Accounting Basics Why bother with accounting? Can t I just check my bank balance and know where I stand? Probably not. Accounting is the language of business and is used to communicate financial information.

4 Balance Sheet or Statement of Financial Position Follows the Fundamental Accounting Equation: Assets = Liabilities + Equity Or for you math wiz s Assets Liabilities = Equity

5 Assets Broken Down Assets: Cash, receivables and inventory Prepaid expenses and other deferred costs Equipment, furniture and buildings Intangibles like goodwill Some assets appreciate in value but most of the assets used in your business will eventually wear out and will need to be replaced using more cash

6 Liabilities The Good & The Bad Debts we owe to outside parties The Good: An obligation incurred to acquire productive assets like inventory or equipment. These are things we can either sell for a profit or used to produce a product. The Bad: A debt owed for things that have already been consumed - like last year s vacation that is still on your Visa card or an equipment loan that extends beyond the useful life of the asset.

7 Balance Sheet Barometers Quick Ratio - a measure of financial liquidity. It determines how easily a business can convert assets into cash to cover its liabilities. = Current Assets (excluding inventory) / Current Liabilities. Current Ratio - similar to the quick ratio to determine a business' liquidity. = Current Assets / Current Liabilities. Days Receivable Ratio - Another measure of a business' liquidity is how long it takes for the company to collect payments from customers. = Average Gross Receivables / (Annual Net Sales / 365) Lets take a look at a sample balance sheet

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9 Income Statement or Profit & Loss Report Video between 2 balance sheets, for instance, December 31, 2015 and December 31, Revenue Expenses = Net Income Examining the details of each of these items enables you to assess the financial health your business. Income Statement Barometers Gross Margin = Gross Profit / Sales Inventory Turnover - equals the number of times you are able to purchase and replace your inventory. The higher the number the better. = Cost of Goods Sold / Average Inventory. Return on Assets - This gives you a rate of return on the assets used in your business. = Net income / Total Assets.

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11 Statement of Cash Flows Possibly the most important statement for you to explain what is happening inside your business. Answers the Question: How can I owe tax when I don t have any money? Where did it go? 1. Operating Activities - how much real cash my business generated. 2. Investing Activities - these are the changes in our permanent assets such as buildings or equipment. 3. Financing Activities - this area summarizes our borrowing activity plus any investments made by the owner less any withdrawals taken by the owner. The sum of these three activities equals the net change in

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13 Cash Flow Forecasting No business ever went broke by having too much cash. Cash is King! ~ The Donald Projecting cash flow for your business is a difficult task but a necessary exercise to avoid finding yourself in a cash crunch The cash flow projection runs parallel to your operating projection. You start by taking your estimates for sales, material purchases, operating expenses, equipment purchases and debt repayments and spreading them out over the next 3, 6 and 12 months. You put in more detail for the early periods This projection is a rolling projection rather than for a fixed time. Don t worry about being 100% accurate - that will never happen. Sample Template available on