This presentation was made at the Washington Area Community Investment Fund (Wacif). This presentation goes over how to use financial statements and tools to make decisions.

1. UNDERSTANDING FINANCIAL
STATEMENTS AND THEIR
TOOLS FOR GROWTH

2. TABLE OF CONTENTS
Introduction to Financial Statements
o Balance Sheet
o Income Statement
o Statement of Cashflow
What should you be looking for:
o Benchmarking
o Business 2 Business Comparisons
o Industry Averages
Key Performance Indicators
o Utilization Rate
o Realization Rates
o Overhead Rates
o G&A Rates

3. TABLE OF CONTENTS
Financial Ratios
o Gross Profit Margin
o EBITDA/Net Profit After Tax Margin
o A/R Turnover Rate (Activity)
o A/P Turnover Rate (Activity)
o Net Working Capital (Liquidity)
Leverage & Economies of Scale
o Debt Leverage
o Income Statement/Retained Earnings Leverage
Accounting System needs and limitations
o QuickBooks Online w/ Fathom Reporting
o BQE CORE
o Unanet
o Deltek
o Data analytics

4. ABOUT TODAY’S SPEAKER
Jeff Wilson II CPA/PFS, CGMA, CFE
Principal
Mr. Wilson is the Principal of The W2 Group, LLC a
“Cloud Based” accounting firm, based in Clinton, MD.
He is a Certified Public Accountant (CPA), Accredited
Financial Counselor (AFC), and Chartered Global
Management Accountant (CGMA), and Certified
Fraud Examiner (CFE) in the State of Maryland. In
addition, he is an Advanced QuickBooks ProAdivsor.
He specializes in working with small to mid–size Not
for Profits, Government Contractors, and Federal and
State governmental entities.
In addition to being a CPA, he spends his free time as
an advocate for financial literacy and personal money
management by teaching financial management for
local non-profits and churches in Southern Maryland.

5. THE
BALANCE
SHEET
 Assets-Liabilities = Equity
 C ash on Hand
 A ctivity
 L iquidity
 E fficiency
 The purpose is to build Equity.

6. INCOME
STATEMENT/PROFIT
&LOSS
 Profitability: Gross Profit
 Growth: Revenue Growth, Gross Profit
Growth, Earning Before Income Taxes,
Depreciation, Amortization (EBITDA)
 **Knowing your “Gross Profit Margin and
Target is Key**

7. STATEMENT
OF CASH
FLOWS
Provides info on how cash is being
provided and used in the business.
Tells you if cash is being provided by
operations or debt financing or Owner
Investment

8. STATEMENT OF
CASHFLOWS
 Operating Activities
 Investing Activities
 Financing Activities

9. FINANCIAL
RATIOS
Your financial
statements tell a few
stories about your
business

10. GROSS
PROFIT
MARGIN
How much money is
left after paying the
employees who create
the “revenue”

11. GROSS PROFIT TARGETS
Targets are meant to be met When they are not met understand “Why” and adjust accordingly

12. EBITDA
EARNING BEFORE INTEREST DEPRECIATION
AND AMORTIZATION
Net
Income
Interest Taxes Depreciation
Amor
tizati
on
Ebitda

13. ACCOUNTS PAYABLE TURNOVER RATE
(ACTIVITY)
Days in a
Month
Accounts
Payable
Total Cost
of Sales
Accounts
Payable
Days

14. ACCOUNTS RECEIVABLE TURNOVER
RATE (ACTIVITY)
Days in a
Month
Accounts
Receivable
Gross
Income
Accounts
Receivable
Turnover Rate

15. A/R VS. A/P TURNOVER RATE

16. NET WORKING CAPITAL (LIQUIDITY)
Current
Assets
Current
Liabilities
Working
Capital

17. KEY
PERFORMANCE
INDICATORS
Understand your
Cost Structure

18. UTILIZATION RATE
Hours
Worked
Total Hours
Available
Utilization
Rate
 The utilization rate is an
important number for firms that
charge their time to clients and
for those that need to maximize
the productive time of their
employees. It can reflect the
billing efficiency or the overall
productive use of an individual or
a firm.

19. REALIZATION RATE
Total Billed
Hours
Total
Billable
Hours
Realization
Rate
 Realization rate is another
important metric for
evaluating
performance. Realization
rates measure the difference
between what you record as
time and what percentage of
that time is paid by the
client.

20. COST STRUCTURE
G&A Costs:
 Labor for strategic planning, business development efforts and to
manage or perform administrative functions
 Bonuses for people who primarily charge their time to G&A
 Professional fees, such as legal, accounting, payroll processing
fees, IT services.
 Travel – perhaps in support of business development efforts
 Business insurance (general liability)
 State & local taxes (not federal taxes!)
 Conferences, business meetings
 Dues and subscriptions
 A proportionate share of total facilities costs
Fringe benefits are costs related to
employing your labor force. Examples
include:
 Vacation
 Holiday labor cost
 Other paid leave labor costs (such as
jury duty, family leave)
 Employer payroll taxes (FICA taxes,
state unemployment taxes)
 401(k) employer match or
contribution
 Health insurance and similar benefits

21. COST STRUCTURE
Overhead Costs: Overhead costs support the efforts of the direct labor workforce, not
necessarily related to a specific contract.
Common examples of Overhead Cost:
Small business personnel commonly wear multiple hats and often need to divide their time
between many categories. Indirect labor is categorized based on what you are doing at the
time. Overhead labor might be, for example, a meeting with project managers and/or the
direct labor force that does not fall under the statement of work.
The travel costs incurred to get you to the aforementioned meeting.
Fees and costs associated with hiring direct employees. This could include the labor time for
your HR person to do interviews, the costs of obtaining security clearances, outside
recruitment fees, and the cost of job advertising.
A proportionate share of total facilities costs (e.g., rent, office supplies, IT services,
telephone costs, etc.)

22. COST STRUCTURE
RATES
 Overhead Rate - A company with low
indirect costs will have a lower overhead
rate, which makes it more competitive with
other firms that must apply a larger amount
of overhead cost to their products and
services.
 G&A Rates – A company with Low G&A
rates reflect a company that does not do a
lot of unnecessary spending and manages
their non direct expenses tightly.
 Fringe Rates – Your fringe rate lets you know
how much your Annual Leave, Medical, and
Retirement, are apart of your cost structure.

23. WHAT'S THE SCORE
LIKE YOUR FAVORITE SPORT, BUSINESS IS
COMPETITIVE. UNLIKE SPORTS THERE IS NO FORMAL
SCOREBOARD TO REVIEW
Ratios tell your individual story but industry comparison
can help you do much more.

24. WHAT'S THE SCORE OF THE
GAME:
I
Benchmarking is a systematic process for identifying and
implementing best practice and efficiencies.
Being able to compare your “KPIs” against Industry Averages is
key to pushing your business to the next level
Getting such data is difficult to attain you should look at the
following areas to get relevant data on your business
• Local Association of your Industry
• Dun and Bradstreet
• Moody’s
• Bureau of Economic Analysis
• Other Department of Commerce Agencies
• Chamber of Commerce

25. LEVERAGE AND
ECONOMIES OF
SCALE
Traditionally, to
grow your business
you have 2
methods.
Debt vs. Equity

26. BALANCE SHEET LEVERAGE
When deciding to grow your business, you have to make a decision. Specifically how
will that growth will be funded. To grow your business you will expend capital
whether through Business Developments or additional marketing, non-fully utilized
labor, or new building.
To pay for these costs, some business use their “line of credit”, take a loan, or issue
debt securities, to fund the future growth.
By using debt to fuel growth or run operations, you are leveraging your balance
sheet. Your balance sheet must be able to handle and manage such leverage.
Specifically, how much debt can your balance sheet handle before it is overleveraged.
A balance sheet that can handle leveraged is one with a good “Current or Quick”
Ratio. i.e. a company with enough assets/capital to support short or long term debt.

27. EQUITY LEVERAGING
When deciding to grow your business, you may decide that it’s cheaper to borrow
from yourself.
What that means is the cost of acquiring more debt and interest costs is greater than
using the company's own cash balance or the issuance of new stock in exchange for
cash.
When using equity to fuel growth you must be sure of the company's ability to
continually produce Free Cash flow. In addition, you must have adequate liquidity
and

28. ACCOUNTING
SYSTEMS
Your Accounting
System is Critical to
your success

29. ACCOUNTING SYSTEMS
Your accounting system is key to how you manage your business. Your
system need to be able to do the following:
 Manage Cashflows
 Pay Vendors Electronically
 Identify and Monitor key KPIs
 Report on the businesses Cost Structure
 Be able to scales as the business grows
 Ease of Use

30. ACCOUNTING SYSTEMS
Leverageable Accounting Systems
 QuickBooks Online w/ Fathom Reporting
 BQE CORE
 Unanet
 Deltek