Improving your CEO Skills means looking at all the angles. It could be from a cashflow point of view to other skills and competencies.

Why did Terry create this?

Always had a coaching aspect to their business. For business owners, there is a huge need for business owners to understand their financial statements.

Example: 

Terry has been coaching for 2 ½ years.

He Owns 3 repair shops - a lot of companies coach you how to run a shop.

Others will teach how to run a dental office.

But that doesn’t teach creating financial statements, reading financial statements.

 CEO2CEO programme (Chief Everything Officer to Chief Executive Officer)

There are 3 main aims:

* Teach people financials.

* Teach bankability - Is it lendable by a bank?

* Non-financial things that can affect the value or saleability of the company.

Teaching financials 

People need to have correct financial statements and then understand them.

They Teach 8-10 financial ratios.

Teaching bankability

Create a debt schedule and understand how a bank would view your business.

Non-financial aspects 

These may not reduce the value of your company so much as make the company unsellable. If you’re counting on this.

Financial statements

Primarily income statement and balance sheets.

Key Ratios

Current ratio - current assets divided by current liabilities. You want that around a 2.

Accounts receivable days - how long it takes you to get paid.

The accounts payable days - how long it takes you to pay suppliers.

Inventory days - how many days do it take you to flip your inventory?

Which Profit ratios really matter?

It’s NOT about sales and net income. It’s about gross margin and cash flow.

Gross profit margin is really important. 

If your sales are going up but your gross margin is going down, you are absorbing expenses.

Cashflow margin - is it staying consistent or going up or down?

Again, if your gross margin is going up but this isn’t, you are adding a lot of overhead.

Traditional accounting issues

The traditional accounting compares sales and net income from one period in one year to a comparable period in the previous year, eg. Jan 2020 cf. last Jan 2019. This is not useful in Terry’s eyes.

You need to look at the monthly trend.

How do the Accounts Receivable (AR) and Accounts Payable (AP) matter?

If you have a cash shortage, you may need a line of credit etc. to fund that.

So, 27 AR, 12 AP - had 15 days to fund before received cash.

With $100K a day in sales, 15 days = $1.5 Million is needed.

If you doubled the sales, you’d need $3 Million to fund that.

Working Capital 

This is the cash you need to fund the day to day activities of your company.

If your AR days are 30 and that’s $0.5M, you’ll have bills in that time period, how much money do you need to cover that gap?

Cashflow planning

The amount of cash you need in your company is a CRITICAL number so you NEVER run out of cash.

You can be profitable and go out of business if you don’t understand the working capital needs of the business.

Bankability

Growth requires a lot more working capital! 

Growing too fast can actually make a bank judge a company negatively.

A friend of Terry’s has a blue-collar company - he didn’t understand the financial statements!

You’ve got to get the financial statements.

Your debt schedule depends on:

* What was the loan amount?

* Collateral?

* Monthly payments?

* When is the loan due?