September 15th, 2008.
Central Ohio was hit by a massive wind-storm Sunday, so my servers are down as I type this message. In addition, our community sent (most of our generators and utility workers) to Texas to help with recovery efforts after Hurricane Ike: This means we'll be down longer than usual for an event like this. We have one generator here, which is enough to power a couple servers and PCs.
We apologize for the loss of service. I'm told we'll be up by Wednesday or Thursday.

For those who live in Central Ohio, I'm sure you'll remember (for some time) where you were when the storm hit. Personally, I was in the last place you'd want to be in a situation like this! I was mountain biking the phase II trail at Alum Creek State Park.
Some friends and I were 3 miles into the woods and had to ride out during the worst of the storm. Aside from a few scrapes and bruises, we all made it out in one piece! but there were so many near misses, I felt like I was in a live version of the movie "Final Destination". I've never experienced such an odd storm. No rain or lightning, but massive winds!

I understand there were a number of deaths in Central Ohio as a result of the wind storm. My sympathy and prayers go to the families of those victims, as well as the families affected by the hurricane in Texas.

September 2008

Featured Link - 401ktest.com:
A Discrimination testing tool priced for the small business community. Use 401ktest.com to make sure your HCEs are not over-withholding by $1,000s, or under-withholding.
Over-withholding by a wide margin is expensive and frustrating. Under-withholding can also be a source of frustration for HCEs. Don't wait till after the end of the year to test your plan!

Projected Financial Statements.com gets an upgrade!
We made the following improvements to our Business Planning tool:

The Income tax projection can accommodate C-Corps, S-corps and LLCs!
- Adjustible income tax rate: If you are an LLC or S-corp, simply adjust your income tax rate down to 3% (or what you feel is appropriate).
- Flexible provision for Systematic Shareholder Draws: Some (S-Corps and LLCs) make a distribution to cover personal taxes created by the company. This provision can now be setup systematically. Just enter a % in the yellow highlighted field!
The Depreciation Schedule is more flexible! You can now choose a different useful life for each month of the first projected year.
Detailed General and Administrative expenses are now included in the 2nd and 3rd Projection years.

We are extremely happy with this projection tool, and so are our clients! I think every small business should use this tool for budgeting, cash flow management, and business plan preparation.

Comming soon!
We are adding a couple more free tools:

Business plan narrative: If you need a formal business plan for an equity placement, we'll provide a tool that will walk you thru the process of creating this document. Yes; it will be free of charge!

Traditional v. Roth comparison template There are lots of variables when it comes to this decision. But the comparison process is systematic, so it can be quantified and measured. I'm not saying it's an easy decision! It's not, because many of the variables involve the future, which is quite unpredictable.

Update to the Income tax Planning Template - Just in time for tax planning season! the new template will more easily accommodate LLCs, S-Corps and States with a 'Value Added Tax'. I may start charging for the tax planning template; but in the mean-time, enjoy it!

August 2008

Featured Link - Em Trend Advisors
Technical Analysis for institutional (as well as sophisticated individual) investors.

We'll feature a sponsor from our links page each month.
We make an effort to endorse sponsors with a good reputation in the business community, so please let us know if you have a bad experience with any of our sponsors. We will investigate your concerns and consider revoking our endorsement.

Projected Financial Statements.com is having a Webinar!
Wednesday, August 13th at 11:00am Eastern Time.
We are holding a series of online demonstrations of our Projection Software. Join us and find out how user-friendly and feature-rich our projection template really is.

Please contact us ASAP if you are interested in joining us this Wednesday. Space is limited, but don't worry if you miss your chance to attend. We will schedule another session very soon.

Items needed for a typical loan request with the bank

If you are going after a business loan, there are a few things that all banks will want to see. This list is not exhaustive, but it is a great starting point. You can click many of the items listed to access valuable tools provided for your assistance. Your bank (or VC) should be very impressed if you prepare your loan package using our tools. We have been using these tools for many years with much success!

Personal Financial Statement

(PFS)

Projected Financial Statements:

A Detailed Business Planning Narrative

every new business should go thru the steps of preparing a detailed business plan

Previous Year's Tax Returns:

I wish you all success as you endeavor to create or expand your business. Go make it happen!

Ratio Analysis:

Here is a list of many ratios used to analyze a company's financial condition - along with an explanation of why they are considered to be important.

LIQUIDITY RATIOS
Liquidity ratios indicate the company’s ability to meet its short term obligations.

The Current Ratio is calculated by dividing current assets by current liabilities. If current assets are greater than current liabilities, the current ratio will be greater than 1.0.
The Acid Test Ratio compares Current Liabilities to Current Assets that can be quickly converted to cash. Here is an example of a formula for an acid test ratio:
Current Liabilities
Average Collection Period: This is an estimate of how many days it takes the Company to collect Accounts Receivable. This is literally the Revenue/Accounts Receivable ratio restated in terms of days. This ratio can indicate the Companies efficiency in making collections and/or its customer satisfaction (among other things) when it is compared to industry standards.
The Average Collection Period and Revenue/Accounts Receivable are also considered to be Activity Ratios. Other activity ratios include Inventory Turnover (or COGS / Inventory), Payables Turnover, and Revenue/Working Capital.

COVERAGE RATIOS:
Coverage Ratios measure the Company’s ability to meet certain obligations and/or the Company’s ability to generate earnings over and above certain expenses or fixed costs.

Times Interest Earned: Also called the Interest Coverage ratio. The formula to calculate Times Interest Earned is
Net Income divided by Interest Expense.
Net Income + Non-cash Expenditures / Current Portion of Long-term Debt: This ratio measures the Company’s ability to pay its short-term debt with cash generated from Operations.
IE: ‘Net Income + Non-cash Expenditures’ is a good estimate of how much cash was generated from Operating Activities.

LEVERAGE RATIOS
Leverage ratios attempt to measure either the effectiveness or the extent of a Company’s use of certain assets, liabilities or investments. Leverage ratios vary greatly from one industry to another, so they are more effectively understood when compared to industry standards.

Fixed Assets / Tangible Net Worth: Comparing the Company’s Tangible net worth (equity less tangible assets) to the book value of fixed assets will indicate if the Company is heavily invested in fixed assets. Falling below industry standards could indicate that the company needs to upgrade its equipment, or that the Company re-invests a higher level of earnings than other Companies in the industry.
Debt to Tangible Net Worth: Also known as Debt-to-Equity in many cases: A High debt to equity ratio may indicate that the company is having a hard time meeting its obligations.

OPERATING RATIOS
Operating ratios typically focus attention on some aspect of Earnings or Sales in order to draw a conclusion about the Company’s ability to generate income.

Gross Profit Margin: Sales - Cost of Goods Sold / Sales. This ratio measures what percentage of each sale is applied toward Gross Profit. In theory; The Gross Profit Margin expresses the portion of marginal sales that will be added to net income before taxes, after the Company has generated enough sales to cover fixed costs and overhead.
EBT/Tangible Net Worth: Earnings Before Taxes over Tangible Net Worth. This Ratio measures the Pre-tax earnings as a percentage of how much shareholders have invested in the Company. Publicly traded companies more often use Return on Equity and Earnings per share to express this concept.
EBT/Total Assets: This Ratio measures pretax earnings in comparison to total assets.
Fixed Asset turnover ratio: Sales / Fixed Assets. This ratio provides a multiple that can be compared to industry standards to measure how much Sales are being generated in relation to the Company’s investment in Fixed assets.
Total Asset Turnover ratio: Sales / Total Assets. This ratio is similar, in concept, to the Fixed Asset Turnover Ratio, except Total Assets are used as a comparison.

EXPENSE TO REVENUE RATIOS
Expense to Revenue Ratios are also referred to as Common-Size Analysis. Expenses are expressed as a percentage of total sales. Common-Size Analysis is a very common tool used to compare a company’s activity with prior year activity, with other companies, and with industry averages.

% Depreciation, Depletion, and Amortization / Revenue: This measures the typical non-cash expense items to total sales.
Officer’s &/or Owner’s Compensation / Revenue: This is a very important item to note for privately held company’s because; this Percentage can vary widely from one company to another; and it directly effects Net Income. IE: If Officer’s Compensation is 35% of Sales and Net Income was at a 2% loss, it may be wrong to assume that the Company is not profitable.

RATIO FUSION!
Lenders and financial analyst will often select a list of ratios and assign a relative point value to each one. This is done to attempt an objective assessment of an particular company. One of my favorite analytical tools of this type is the Altman's Z-score for Privately Held Firms - A variation of the original Z-score formula developed by Dr. Edward I. Altman in 1968.

ALTMAN'S Z-SCORE for Privately Held Firms:

Working Capital / Total Assets.
Retained Earnings / Total Assets.
Earnings before interest and Taxes / Total Assets.
Market Value of Equity / Book value of Total Debt. This is not a readily available number for privately held companies, so I often use a 'rule of thumb' valuation to calculate the Market Value of Equity.
Net Sales / Total Assets.

Altman's Z for Private Firms - Predetermined Cut-offs:

	Non-manufacturing	Manufacturing	Manufacturing: Publicly traded
Bankrupt	Less than 1.1	Less than 1.23	Less than 1.81
Zone of Ignorance	1.1 to 2.6	1.23 to 2.9	1.81 to 2.99
Non-Bankrupt	Greater than 2.6	Greater than 2.9	Greater than 2.99

Right-size the company based on your current market share and an honest assesment of what the company is capable of in the future.
Create a new business plan and seek an infusion of capital.
Quietly sell the Company's assets, pay bonuses to your Senior Directors, and stick it to the minority shareholders by leaving them with nothing.

Financial Loan Package Checklist

click here for a list of things needed for a business loan,
and the tools to help you put the package together!