Practice Eye Cash Flow Analysis: Case Study

Analysis Cash Flow to Gain New Business

PracticeEye recently received a call from a young lady who had started a manufacturing and retail business. She manufactures very high end bridal and other types of gowns. The gowns are sold in her retail stores ranging in price from $4,500 to $10,000.

She is a great designer but has little business experience. She started the business with $85,000. Our team initial conversation with her, the bulk of which consisted of many questions from me regarding her business, was by phone.

We asked about her annual volume.

"$600,000," she replied.

"A small client for our firm," I thought, "Tell me about costs, margins and your number of employees...what are your major problems"?

"I need cash. I have a lousy bookkeeper. I am running out of money. I think bank loans would help. What do I do?" she asked.

"Not unusual for a start up," I thought.

Our team invited her over to our office to perform an analysis as to what she might expect. One of our team member asked her for a trial balance so we could review it before we met.

Step 1 - Perform the Forecast

We handed the TB to my secretary (who had learned how to use the key-in feature of the Up Your Cash Flow [UYCF]). We sat down for a couple of minutes and I indicated which expenses on the P&L were fixed. All others were variable.

It took Richard, my secretary, about 15-20 minutes to key in the trial balance sheet and transfer the information to the main section of the program. He printed the opening balance sheet, P&L, cash flow, forecasted balance sheets and the assumptions.

Step 2 - Review for Accuracy

Our account expert team spent about 5 minutes reviewing his work. Only one change was needed.

Step 3 - Set Up a Consultation

The client and I met two days later. She brought more current data along with a sales forecast for 2006. We sat at my computer to discuss and adjust the details of the forecast. With little business and financial experience, I found her to be quite bright. She was a quick learner.

During the process she indicated that she hired another accounting firm to prepare some forecasts for the business at a cost of $3,500.

"A lot of money for a start up to be paying," I thought.

She also complained that every time they needed to make a change to the forecast it became a rigmarole using spreadsheets and quite costly. She was amazed at how easily I could forecast revenues by "Bridal Gown sales" and "Other Gown sales" and make assumption changes in seconds.

Step 4 – Explain What the Financials Mean to Your Client

She now had a better handle on the amount of cash she would need and when she would need it. We discussed the various avenues of raising the bucks. I told her how very difficult it would be.

She was paid for her product in advance. She received 50% down, then 25% 30 days later, and another 25% in the 30 days following. This practice resulted in minimal receivables. Her business had no collateral available to sustain a traditional loan. No home to put up.

She needed cash for raw material, mfg overhead, inventory, advertising and very expensive samples. Her original $85,000 was not enough.

Step 5 - Quote the Fee

I quoted a ball park fee for 12 months accounting service which fell in the range of $10-15,000 depending on what needed to be done. I discussed a retainer.

We set up an "Action Plan"

Step 6 - The Action Plan

Her responsibilities:

1. She needed to refine the assumptions relating to inventory and expenses. It adds more precision to the forecast.

2. She would need to spend some time attempting to identify potential investors.

3. Take a physical inventory so we could figure out her real margin.

Our responsibilities:

1. Refer a new bookkeeper.

2. Send an email blast to my networking groups to see if anyone might know someone interested in debt or equity financing for a start up. We might get lucky.

Conclusion:

A new client. A reasonable fee. All in less than 90 minutes (including my secretary’s time.) By the way We didn't charge her for the initial work. Will she be a good client? Yes if she makes it. It was worth the 90 minutes.

Our senior team member wouldn’t promote the program if he didn’t know its true worth. We have used Up Your Cash Flow every business day since our team developed the program. It is more than financial forecasting software, more than a means to perform cash flow analysis; it is a connectivity tool to enhance client relationships and generate new business and Practice Eye team build a new connection with our client.