The document discusses the differences between budgets and forecasts, with budgets being annual goals and forecasts providing more frequent updates on actual performance. It also covers creating annualized cash flow projections and periodic cash flow projections on a weekly or monthly basis to better understand liquidity over time. The CEO's role in financial management is also outlined, including understanding key metrics and ensuring accurate financial reporting and cash flow management.

1. Budgets, Forecasts, and Cashflow
“A budget tells us what we can’t
afford, but doesn’t keep us from
buying it!”

2. By the End of This Meeting:
• Understand the difference between budgets and
forecasts
• Understand your role (CEO) in the financial
management process
• Understand:
– Your business income needs
– Forecasting annualized cash flow
– Your retirement needs
– Forecasting periodic cash flow
• Know your next steps

3. Budgets Versus Forecasts
Budgets Forecasts
Create: Annually Annually
Update: Quarterly Weekly / Monthly
Purpose: Tells you where you Tells you where you are at
want to go and where you will likely
go given your current
heading
Best Used: Goal setting, Managing day to day
incentives operations
Who: Collaborative Limited group to allow for
company / faster turn around times
department / team
effort
Importance in Decision Making Less More

4. Budget Versus Forecast
The “Budget”
The “Forecast”

5. Budgets Versus Forecasts
Update Frequency
Budgets Forecasts
Sales: Quarterly Weekly / Monthly
Raw Materials / COGS: Quarterly Weekly / Monthly
Labor: Quarterly Monthly
Fixed Expenses (e.g. Rent): Annually Semi-Annually
Variable – Predictable Cost: Quarterly Monthly / Quarterly
Variable – Unpredictable Cost: Quarterly Weekly / Monthly
Asset Purchases / Disposals: Quarterly Quarterly
Debt Service: Quarterly Quarterly
Equity Transactions: Quarterly Quarterly

6. CEO’s Role
“In entrepreneurial companies, CEOs generally achieve success for reasons other than
finance. Failure to understand the numbers can kill your company.”
What: How:
Ensure timely and accurate • Set meeting with finance team to review balance sheet, p&l 15
accounting and reporting days after month close. Periodically ask to see reconciliations to
systems. each balance sheet account (e.g. how did this number get here?)
• Require weekly cash reports produced by Monday 9:00 am.
Identify the right numbers / • Profit – sales, gross margin, EBITDA
key indicators to watch. • Liquidity – debt / equity, quick ratio, working capital
• Operations – 3 – 5 KPIs
Know how to read the key • Balance sheet – a snap shot in time
financial documents. • P&L – what happened over a period of time
• Cash flow – what happened to cash between two periods in time
Manage cash flow. • Don’t confuse sales and profit with cash
Use financial information to • See previous slides
forecast the future.

7. Why Do You Need To Make More?
1. I want to provide a better lifestyle for my
family today? (e.g. more vacations, college,
new car)
2. I want to retire comfortably?
3. I want to leave something for my kids /
legacy?
4. I just want to keep score (Donald Trump)?

8. What Do I Need to Make? - 1
Sales Budget Worksheet
Monthly Household Payments
Principal Home - Total Payment $ 2,200.00
Auto Loans $ 1,200.00
Credit Card Payments $ 1,200.00
Child College / Education / Retirement $ 5,150.00
Other Personal Debt $ 300.00
Total Monthly Payments $ 10,050.00
Annualized $ 120,600.00
Gross Income Requirements - Personal $ 402,000.00 Annualized / .3
Operating Company Ownership % 25%
Company Income Required - Pre Debt, No Owner Salary $ 1,608,000.00
Company Debt
Monthly Principle Payments - Long Term Debt $ 6,500.00
Monthly Lines of Credit Payments $ 1,200.00
Total Monthly Payments $ 7,700.00 Annualized $ 92,400.00
Total Income Requirement $ 1,700,400.00
Total Sales - Prior Year $ 3,000,000.00
Net Income - Prior Year $ 400,000.00
Officer Salaries $ 600,000.00
Extrapolated Net Income - Including Officers $ 1,000,000.00
Extrapolated Profit Margin 33.3%
Increased Sales Required to Produce Necessary Profit $ 2,101,200.00
Growth Required 70.0%

9. Exercise 1 – What Do I Need to Make?
• Take 10 minutes to complete exercise – ask
BGW team members for help if you need to.

10. Annualized Cash Flow

11. Annualized Cash Flow
It’s difficult to change operating results over a long time period – therefore
forecasting cash flow can be simple.
Study of operating performance of over 10,000 public companies over a period of
10 years demonstrates convergence to a “standard.” In addition, the relationship
to operating performance and asset growth stayed constant.

12. Annualized Cash Flow
Inputs Where / How
Net Income % • Use historic averages from profit and
loss statements.
Sales Growth % • Use sales budgets adjusted for historic
performance.
Opening Balance Sheet • Cash
• Operating Assets (e.g. A/R, Fixed Assets)
• Debt Service Requirements
• Planned Equity Transactions (draws)

13. Annualized Cash Flow - Example
Sales Growth – 70% - Negatives are Use of Cash
INPUTS
Cash - End of Last Year $ 150,000.00
Tangible Assets - Last Year $ 275,000.00
Planned Owner Draws - This Year $ 1,008,000.00
Cash Forecast
From previous exercise
Beginning Cash $ 150,000.00
Plus Net Income $ 1,700,400.00
Less Owner Salaries $ (600,000.00)
Less Asset Growth $ (192,610.00) PY Asset * Growth Rate 70%
Less Debt Service $ (92,400.00)
Less Owner Draws $ (1,008,000.00)
Ending Cash $ (42,610.00) D’oh!

14. Exercise 2 – Annualized Cash Flow
• Take 10 minutes to complete exercise – ask
BGW team members for help if you need to.

15. My Retirement Needs
• Inputs (Conservative Method – Net of
Inflation)
– Income Requirements (previous exercise)
– Current Retirement Savings
– Desired Legacy Amounts
– Planned Retirement

16. My Retirement Needs
4% - Net of Inflation
Annualized Income $ 402,000.00
Income in Retirement $ 261,300.00 65% of Annualized
Retire In 15 Years
At Age 63
EOL 95
Retirement Years 32
My Income Needs $ 8,361,600.00
Existing Retirement $ 400,000.00 Investments + Property
Double In 18 Years 72 / 4%
Future Value $ 733,333.33 Existing + Growth
Current Contributions $ 35,000.00 Annually
Annualized $ 525,000.00
Future Value $ 787,500.00
Total Planned $ 1,520,833.33
GAP $ (6,840,766.67) Gap to Close w/Biz Value

17. Exercise 3 – Retirement Needs
• Take 10 minutes to complete exercise – ask
BGW team members for help if you need to.

18. Business Value – Close the Gap
• General Rule of Thumb:
– COGS w/Physical Materials - .4 - .7 X Sales (lower
multiple of net is lower, higher multiple if net is
higher)
– Services - .7 - 1 (lower multiple of short term
contracts, higher multiple of long term contracts)
– Technology – 1 – 2 X Sales
• Take Today’s Value Versus GAP value to
understand required growth
• EX: $5m value today, gap $2m. Gap / Multiple =
required sales growth.

19. Periodic Cash Flow
• Annualized data tells you the annual picture,
but doesn’t tell you “when” or account for
seasonality.
• Start small, then increase duration (e.g. a
payroll cycle to 90 days).

20. Periodic Cash Flow
Example – Short Term – Each Week
Week 1 Week 2 Week 3 Week 4
Sources:
Beg Cash Cash from the end of the prior week.
Collections Use A/R turns or actual A/R to project.
Uses:
Payroll / Labor Use historic / planned data.
A/P Use actual A/P.
Rent Use actual – if not in A/P.
Debt Payments Use actual – if not in A/P.
Equity (Draws) Use historic / planned data.
Sources Less Use this number as the beginning point
Uses for the next week.

21. Periodic Cash Flow
Example – Long Term – Each Week
Month 1 Month 2 Month 3
Sources:
Beg Cash Cash from the end of the prior month.
Collections Use A/R turns or actual A/R to project month 1 and 2. Use
Month 1 (or prior month) sales to predict Month 3.
Uses:
Payroll / Labor Use historic / planned data.
A/P Use actual A/P for Month 1, 2. Use historic operating margin for
month 3.
Rent Use actual – if not in A/P for month 1. Use historic / planned for
month 2, 3.
Debt Payments Use actual – if not in A/P for month 1. Use historic /planned for
month 2, 3.
Equity (Draws) Use historic / planned data.
Sources Less Uses Use this number as the beginning point for the next week.

22. Tools / Next Steps
• Diagnostic Checklist
• BGW Dashboard
• Steroid Dashboard
• Sustainable Growth Rate
• Trailing 12 Months
• Daily Cash Report
• Z-Score
• Executive Summary